Emids Technologies Pvt. Ltd. Vs DCIT (
Summary: The Bangalore Income Tax Appellate Tribunal considered an assessee’s appeal against the final assessment order dated 29 October 2024 for Assessment Year 2021–22. The assessee, a wholly owned subsidiary of Specialists Resources Global Corporation, USA, provided IT services and entered into international transactions with associated enterprises. In its software development services transfer pricing study, it selected nine comparable companies using the transactional net margin method (TNMM). The Transfer Pricing Officer (TPO), after applying different filters and selecting 18 comparables, determined an arm’s length price of ₹3,52,78,84,782 against receipts of ₹3,25,51,77,861, resulting in a software development adjustment of ₹27,27,06,921. The TPO separately proposed ₹71,41,762 for delayed receivables” target=”_blank” rel=”noopener”>interest on delayed receivables. Following the Dispute Resolution Panel’s directions, the software development adjustment was reduced to ₹18,55,60,354 and the delayed receivables adjustment to ₹30,20,843.
On the inclusion issue, the assessee challenged the exclusion of Orangescape Technologies Ltd. and Infomile Technologies Ltd. merely because they did not appear in the TPO’s database search results. It produced search screenshots and financial information and relied on the coordinate bench ruling in Dotgo Pvt. Ltd. v. DCIT. The Tribunal held that a comparable could not be rejected solely for being absent from a filtered search output where functional comparability and the prescribed criteria were otherwise met. Following the coordinate bench’s reasoning, it directed the Assessing Officer to include both companies as comparables after necessary verification for determining the arm’s length price.
The assessee also sought exclusion of Net4Nuts Ltd., Aptus Software Labs Pvt. Ltd. and Consilient Technologies Pvt. Ltd. on functional grounds. The Tribunal referred to the coordinate bench’s findings for the same assessment year, which identified diversified enterprise solutions, cloud computing, testing, quality assurance, communications and related activities differing from the assessee’s software development services. It therefore directed deletion of all three companies from the comparable set. The Tribunal allowed the assessee’s grounds concerning inclusion and exclusion of comparables, while the remaining contested issues required factual verification.
For notional interest on delayed trade receivables, the Tribunal followed NTT Data FA Insurance Systems (India) (P.) Ltd. v. DCIT and the cited Karnataka High Court decision in PCIT v. AMD India Pvt. Ltd. It directed the Assessing Officer to verify the currency of the underlying transactions: where receivables were denominated in foreign currency, interest should be computed at LIBOR plus 2%; otherwise, the SBI prime lending rate was to be applied. It also remitted the assessee’s claim of short credit of ₹25,85,990 in self-assessment tax for verification and consequential relief if correct. Accordingly, grounds 4 and 5 were allowed, grounds 7 and 8 were remitted, and the appeal was partly allowed for statistical purposes. The order was pronounced on 2 July 2026.
FULL TEXT OF THE ORIGINAL JUDGMENT/ORDER
This is an appeal filed by the assessee challenging the final assessment order dated 29/10/2024 in respect of the A.Y. 2021-22.
2. The brief facts of the case are that the assessee is a wholly owned subsidiary of Specialists Resources Global Corporation, USA and engaged in the rendering of IT services. The assessee had international transactions and therefore the AO had made a reference u/s. 92CA of the Act to the transfer pricing officer for determining the arms length price. The Ld.TPO requested the assessee to submit the documents along with the financials, annual reports and copy of the agreements. The assessee also furnished the same. Thereafter the Ld.TPO had issued a show cause notice and the assessee also submitted their objections.
3. The assessee in its TP document, had taken the 9 comparables in respect of software development services by applying certain filters and TNMM as the most appropriate method. The Ld.TPO had rejected the TP study of the assessee since the same has not applied the appropriate filters. The Ld.TPO had, issued show cause notice on that basis. The assessee also submitted their detailed objections. The assessee had selected 9 companies as comparables on the basis of search conducted in the public database viz., Prowess and Capitaline. The Ld.TPO also searched the databases viz., Prowess and AceTP and on the search result, the Ld.TPO had taken 18 companies as comparables. The Ld.TPO had considered the various filters adopted by him for selecting the 18 comparable companies. Based on the said final list of comparables, the Ld.TPO had determined the arms length price at Rs. 3,52,78,84,782/- as against the price received Rs. 3,25,51,77,861/- and treated the shortfall of Rs. 27,27,06,921/- as the transfer pricing adjustment u/s. 92CA of the Act in respect of software development segment of the assessee’s international transactions.
4. The Ld.TPO had also made a transfer pricing adjustment in respect of the interest rate by taking the SBI PLR interest rate as the appropriate one for determining the arms length price rate to measure the interest compensation in these types of transactions. The Ld.TPO also made it clear that if the invoices are raised in domestic currency, the interest rate should be charged on the basis of average SBI PLR during the F.Y. 2020-21 i.e. 12.27% per annum and if the invoices are raised in foreign currency, the interest rate to be charged is on the basis of the mark-up on prevailing LIBOR rate during the year. The Ld.TPO had finally arrived the TP adjustment for the interest on delayed receivables at Rs. 71,41,762/-. The Ld.TPO had forwarded his order to the AO and the AO had passed a draft assessment order in which the TP adjustment of Rs. 27,98,48,683/- made by the Ld.TPO was added to the returned income of the assessee.
5. The assessee filed their objections before the Ld.DRP against the draft assessment order made u/s. 144C of the Act. The Ld.DRP after considering the objections as well as the documents furnished by the assessee had given directions with regard to the verification of margins, adoption of figures as per the annual report and accordingly calculation of the PLI margin, inclusion of certain comparables, credit period of delayed trade receivables interest. Thereafter the said directions were complied with by the TPO and also two companies were deleted from the list of comparables and finally the TP adjustment of Rs. 18,55,60,354/- was arrived. As against the interest on delayed receivables, the Ld.TPO had made the TP adjustment at Rs. 30,20,843/-. The AO had made the above said additions to the total income of the assessee for the A.Y. 2021-22 in his final assessment order dated 29/10/2024.
6. As against the said order, the assessee is in appeal before this Tribunal.
7. At the time of hearing, the Ld.AR submitted that the Ld.TPO had rejected the Orangescape Technologies Ltd. and Infomile Technologies Ltd. as comparables since the said companies does not form part of the search results through the database used by the Ld.TPO. The Ld.AR submitted that the assessee as well as the two companies are functionally comparable companies and while doing the TP study, the assessee through the Prowess database had selected these companies as comparables and therefore the finding of the Ld.TPO is contrary to the TP study conducted by the assessee through the Prowess database. The Ld.AR further submitted that the assessee company as well as the two companies are functionally comparable companies and satisfied all the filters proposed by the TPO and therefore the exclusion of the two companies by the Ld.TPO is not in order. The Ld.AR further submitted that the assessee had demonstrated before the Ld.DRP that both the companies are appearing in the Prowess database and forms part of the search matrix and also submitted a screenshot of the search matrix in support of their contention. The Ld.AR relying on the annual report of the said companies and submitted that both the companies are functionally comparable to the assessee and therefore the company should be included for the purpose of arriving the arms length price. The Ld.AR also submitted that both the companies qualifies all other filters mentioned by the Ld.TPO in its order and therefore the non-inclusion of the said companies are bad in law. The Ld.AR also relied on the decision of this Tribunal in the case of Dotgo Pvt. Ltd. vs. DCIT in IT(TP)A No. 2096/Bang/2024 dated 05/08/2025 in which the Tribunal had directed to include both the companies.
8. Insofar as the exclusion of the companies as per ground no. 5, the Ld.AR had restricted his submissions in respect of the three companies i.e. Net4Nuts Ltd., Aptus Software Labs Pvt. Ltd. and Consilient Technologies Pvt. Ltd. and relied on order of this Tribunal cited supra and prayed to follow the said order and exclude the three companies which were added by the AO while making the arms length price. The Ld.AR also submitted that the interest on delayed receivables should be computed on LIBOR + 200 basis points rather than the arbitrary mark-up applied by the TPO vide ground no. 7. The Ld.AR also disputed the short grant of tax credit vide ground no. 8. The Ld.AR also filed their written submissions and also furnished the copy of the order of the Coordinate Bench of this Tribunal cited supra and prayed to grant the relief. The Ld AR also filed paper books enclosing the annual reports of the comparable companies and also filed their written submissions.
9. The Ld.DR also filed the written submissions and submitted that the order of the Coordinate Bench of this Tribunal is no longer resintegra in view of the orders of this Tribunal reported in (2025) 180 taxmann.com 447 (Bangalore), (2025) 178 taxmann.com 229 (Bangalore), (2025) 180 taxmann.com 631 (Bangalore) and (2016) 177 TTJ 678 (Mumbai) and therefore prayed to confirm the order of the lower authorities. The Ld.CIT.DR further submitted that the assessee had not raised any objections with respect to the databases used or the key words applied in the search process and therefore permitting inclusion of fresh comparables at this stage would create an anomalous situation and therefore submitted that the order of the AO which is based on the detailed order of the Ld.TPO, may be confirmed and prayed to dismiss the appeal.
10. We have heard the arguments of both sides and perused the materials available on record.
11. At the time of argument, the Ld.AR restricted his submissions to ground nos. 4, 5, 7 and 8.
12. In respect of the ground no. 4, it is the case of the assessee that the non-inclusion of the two companies on the pretext that the same were not found in the database of the TPO is not correct. The Ld.TPO had searched the Prowess and AceTP data base and gave a finding that the said companies were not found place in the said database and therefore not taken the two companies as comparables while computing the arms length price. To disprove the said contention, the assessee had relied on the same Prowess database in which both the companies are available and in fact filed a screenshot of the database and therefore the non-availability of the companies in the database is not a genuine one. Further, when similar dispute arose in the appeal of another assessee for the very same A.Y. 2021- 22, the Tribunal had given the following findings.
“18. So far as five (5) comparables are concerned included by the assessee and rejected by the TPO i.e.
i. Rate Gain Travel Technologies Ltd.
ii. Toxsl Technologies Pvt, Ltd.,
iii. CES Ltd. (Segment Data of IT Services),
iv. Infomile Technologies Ltd and v. Bennett Technologies Pvt. Ltd;
18.1 The assessee had provided the audited financials and functional profile of these comparables, and further raised that it was not the case that Ld. TPO did not find these comparables to be functionally dissimilar. All these comparables met the filters/criteria of the TPO. The Ld. TPO however rejected the same on the ground that it did not feature in his search result. Reliance in this regard is placed on the following decisions wherein the coordinate benches of the ITAT, Bangalore decided the issue favouring assessee.
1. Autodesk India (P.) Ltd. Vs. ACIT (150 taxmann.com 78) [ITAT Bang] [Pg 1 to 4 of the Legal PB]
2. ContinuServe Softech India (P.) Ltd v. ITO (145 taxmann.com 239) [ITAT Bang]
3. Deliverhealth Solutions India (P.) Ltd. Vs. JCIT (157 taxmann.com 703) [ITAT Bang]
4. Microchip Technology (India) /(P.) Ltd. Vs. DCIT (147 taxmann.com 373) [ITAT Bang]
5. Continental Automotive Components India Pvt. Ltd. Vs. DCIT (155 taxmann.com 449) [ITAT Bang]
18.2 In view of the above, we hold that the reasoning provided by the Ld. TPO for rejecting the comparables is not valid. In transfer pricing analysis, the comparables should be excluded only when there is a lack of functional similarity. In this case, no such dissimilarity has been established. If comparables are functionally relatable, they cannot be dismissed solely because they do not appear in the results of a revised benchmarking search using specific filters.
18.3 While it is permissible for the TPO to use updated financial data in a fresh benchmarking exercise, the mere fact that a comparable does not appear in the filtered search output is not sufficient ground for exclusion. The focus must remain on whether the comparable meets the required functional, asset, and risk (FAR) criteria. Accordingly, the five comparables in question are directed to be included for computing the Profit Level Indicator (PLI) after necessary verification as per law for determining the arm’s length price of the international transaction.”
13. The decisions relied on by the Ld.CIT.DR are not on the facts of the present case and in fact, the decision relied on by the assessee is directly on this issue and therefore we are following the said decision and a similar order has been passed. We, therefore, direct the AO to include the two companies as comparables after making necessary verifications as per law for determining the arms length price of the international transactions.
14. In respect of ground no. 5, the AO had included 14 companies as comparables even though the said companies are functionally dissimilar to the assessee. At the time of hearing, the Ld.AR made a submission that they are pressing to exclude the three companies Net4Nuts Ltd., Aptus Software Labs Pvt. Ltd. and Consilient Technologies Pvt. Ltd. since they are functionally dissimilar to the assessee. In support of their submissions, the assessee had also relied on the very same order of the Coordinate Bench of this Tribunal cited supra wherein this Tribunal had deleted the said companies as functionally dissimilar and therefore the same should not be taken as comparable companies. The relevant finding of the Tribunal is as follows:
“24. Net4Nuts Ltd. The functional profile of this company is enclosed at Page 121 of the Factual PB-II. Perusal of the same reveals that, this company is engaged in the business of providing enterprise-wide solutions across multiple industries, ERP, cloud computing, custom software development, off-shore engineering services, designing, architecting developing and maintenance of high availability software products / solutions, mobile value-added services. The provision of such diversified services differs greatly from the SWD services provided by this company is thus not functionally comparable to that with assessee’s business.
25. Useful reference may be made to the decision of the Hon’ble ITAT, Mumbai in the case of Varian Medical Systems International (India) (P.) Ltd. Vs. DCIT (158 taxmann.com 84) [Refer Pg 102 of Legal PB] wherein it was held that, a company providing diversified services including enterprise solutions and IT enabled services, viz., cloud computing cannot be said to be comparable with the assessee providing SWD services to its AE
26. Aptus Software Labs Pvt. Ltd. The assessee has enclosed the functional profile of this company at Pages 122 to 125 of the Factual PB-l/. It shall be observed that, this company is engaged in several diversified businesses which vastly differ from those of the assessee, i.e. infrastructure management, cloud computing, content management systems, network operations center, quality assurance services such as functional testing, security testing, performance scalability reliability testing, test automation. The provision of such services differs greatly from the software development services provided by the assessee company. This company is thus not functionally comparable
26.1 Reliance in this regard is placed on the decision of the Hon’ble ITAT, Bangalore in the case of Citrix R&D India (P.) Ltd vs. DCIT (145 taxmann.com 579) [Refer Pg 112 & 113 of Legal PB] wherein it has been held that the company engaged in diversified business segments including testing and quality assurance services cannot be held as a comparable for a company which is a captive service provider providing SWD services to its AEs. Similarly, the Hon’ble ITAT Bangalore in the case of NTT Data Information Processing Services (P.) Ltd vs. DCIT (154 taxmann.com 460) [Refer Pg 123 & 124 of the Legal PB] also excluded a company providing software testing and QA services in the final list of comparables in the case of an assessee company providing SWD services to its AEs.
27. Consilient Technologies – Upon going through the functional profile of this company which is enclosed at Page 126 of the Factual PB-ll, it shall be noted that, this company is engaged in providing optimized software algorithms involved in voice, data, fax, solutions of speech processing, digital communication and video signal processing, high performance loud-based solutions, performance optimization services. Thus, it is not exclusively into software development and the provision of its services is diversified than the SWD services provided by the assessee. This company is thus not functionally comparable.
27.1 In view of the above detailed discussion, we direct the TPO to work out the PLI of the assessee, select the comparables as discussed above and workout the arm length price of the assessee with respect to the international transactions carried out by the assessee with its AE. Hence, the ground of appeal of the assessee is hereby partly allowed.”
15. The cited order relates to the A.Y. 2021-22 and therefore the said findings are applicable to the facts of the case and we direct the AO to delete the above said companies from the list of comparables.
16. Insofar as ground no. 7 about the computation of notional interest on delayed receivables, the contention of the assessee is that the transactions are not international transactions and in any event, it cannot be treated as a separate international transaction independent of the principle transactions. The another contention made by the assessee is that they are not charging any interest on trade receivables from both AEs and non-AEs. We have considered the said submissions and also gone through the order of the Coordinated Bench of this Tribunal in the case of NTT Data FA Insurance Systems (India) (P.) Ltd. vs. DCIT reported in (2023) 147 taxmann.com 250 (Bangalore Trib.) wherein the Tribunal had held that once the transaction between the assessee and its AE is in foreign currency with regard to the receivables, the said transactions are international transactions. In the said order, the Tribunal had relied on the Hon’ble Jurisdictional High Court judgment in the case of PCIT vs. AMD India Pvt. Ltd. in ITA No. 274 of 2018 dated 31/08/2018 to conclude that the transactions are international transactions. The Tribunal had finally concluded that the interest rate should be applied LIBOR + 2% in such transactions and remitted the said issue to the AO to pass orders accordingly.
17. In the present case, it is not ascertainable that whether the transactions between assessee and its AE are in foreign currency. If the transactions are in foreign currency, the rate of interest should be applied LIBOR + 2% otherwise the SBI PLR interest rate should be adopted. In order to ascertain the said fact, we are remitting this ground no. 7 to the AO and on verification, apply the correct rate of interest as observed by us.
18. Insofar as ground no. 8, the assessee submitted that the AO had not granted the credit of self assessment tax paid by the assessee and therefore a short grant of tax credit of Rs. 25,85,990/- was computed by the AO. The contention of the assessee is based on the facts and on verification of records. We, therefore, remitting this issue also to the file of the AO to verify the said facts and records and if the contention is correct, grant the credit of self assessment tax paid by the assessee and thereafter compute the tax liability in accordance with law.
19. Accordingly, ground nos. 4 and 5 are allowed and ground nos. 7 & 8 are remitted to the file of the AO for computing the correct interest rate and also to verify the self assessment tax paid by the assessee.
20. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 02nd July, 2026.
