Quotient Technology India Private Limited Vs ITO (ITAT Bangalore)
A Captive Software Unit Cannot Be Benchmarked With Branded Giants-FAR Differences, Intangibles & Aggregate RPT Filter Matter U/s 92CA: Bangalore ITAT
The Bangalore ITAT has held that companies possessing substantial brands, intangibles, diversified operations or materially different assets cannot be compared with a captive software development service provider merely because all of them operate broadly within the software sector.
The Tribunal also held that, for applying the Related Party Transaction filter, transactions appearing on both the income & expenditure sides must be aggregated. Further, no notional interest can be imputed on an outstanding receivable where the agreed payment date had not expired before the end of the relevant FY.
Facts of the Case
Quotient Technology India Pvt. Ltd., a wholly owned subsidiary of Quotient Technology Inc., USA, provided captive software development services to its parent company.
For AY 2022-23, it returned income of ₹4.81 crore. The assessee reported software development services of approximately ₹75.39 crore, employee-related recoveries, reimbursements & other international transactions.
The assessee adopted TNMM with OP/OC as the Profit Level Indicator. Its margin of 14.81% fell within the arm’s-length range of the ten comparables selected in its transfer-pricing study.
The TPO rejected parts of the study, conducted a fresh search & selected 23 comparables having a median margin of 24.18%. He proposed an adjustment of ₹6.19 crore in the software development segment.
The TPO also treated outstanding receivables as a separate international transaction & imputed interest of ₹5,38,268, applying LIBOR plus 450 basis points after allowing the contractual credit period of 60 days.
The final assessment u/s 143(3) r/w ss.144C(13) & 144B assessed income at approximately ₹11.05 crore.
Limitation Ground Withdrawn
The assessee initially challenged the final assessment as barred by limitation by relying upon the “Roca issue” arising from the decisions in CIT v. Roca Bathroom Products Pvt. Ltd. & Shelf Drilling Ron Tappmeyer Ltd. v. ACIT.
However, considering the retrospective amendments made to s.144C by the Finance Act, 2026, the assessee withdrew this ground. The Tribunal accordingly dismissed it as not pressed.
Rates, Taxes & Rent Are Operating Items
The TPO had excluded ₹2,06,290 disclosed under “rates & taxes” while computing the assessee’s operating margin, treating it as non-operating or extraordinary.
The assessee explained that the amount included rent, which was intrinsically connected with its operating activity. The Departmental Representative fairly agreed that rent could not be excluded from operating costs.
The Tribunal directed the AO to verify the composition of the amount. To the extent it represented rent, it had to be treated as an operating item while recomputing the assessee’s margin.
No Interest Before the Debt Became Overdue
The TPO imputed interest on six invoices forming part of the outstanding receivables from the AE.
However, the details contained in the TPO’s own order demonstrated that the payment due dates of all six invoices fell either on 31.03.2022 or thereafter.
The Tribunal held that no delay had occurred up to the close of the relevant FY. A receivable could not be treated as delayed merely because it remained outstanding in the accounts when its contractual due date had not expired.
The adjustment of ₹5,38,268 towards notional interest was therefore directed to be deleted completely.
Captive Unit Versus Branded & Diversified Companies
The Tribunal examined the assessee’s functional profile under Rule 10B(2). Quotient India operated as a captive service provider under the control & instructions of its US parent. Core R&D, product development, strategic decisions, funding & ownership of intangibles rested with Quotient US.
The Indian entity owned only minimal software intangibles & rendered routine software development and support services.
Against this profile, the Tribunal directed exclusion of Happiest Minds Technologies Ltd., which was an industry leader in product engineering, digital business solutions, infrastructure management & security services, besides owning substantial intangibles including goodwill.
Tata Elxsi Ltd. was excluded because of its significant turnover, distinct asset base & substantial benefit from the Tata brand. A captive service provider without comparable brand strength could not be equated with an entity enjoying such valuable market intangibles.
Cybage Software Pvt. Ltd. was excluded because it rendered diversified services including digital marketing, branding, visual design, content marketing, campaign management, creative production & IT consultancy, without reliable segmental information.
The Tribunal also directed exclusion of Robosoft Technologies Pvt. Ltd., considering its distinct revenue streams, including software-related activities, user licences, technical services, rental & office-management income.
Assessee’s Proposed Comparables Rejected
The assessee sought inclusion of Batchmaster Software Pvt. Ltd., Evoke Technologies Pvt. Ltd., ToXSL Technologies Pvt. Ltd. & Great Software Laboratory Pvt. Ltd.
The Tribunal upheld their exclusion owing to their materially different functions. Batchmaster was engaged in ERP products for process-manufacturing industries. Evoke specialised in advanced technology-driven services such as AI, machine learning, cloud computing & automation. ToXSL was found to be engaged in consultancy & Great Software Laboratory undertook broad digital product engineering involving cloud, IoT, analytics & machine learning.
Mere use of the expression “software development” could not override the actual functions performed, assets employed, risks assumed & characteristics of services rendered.
RPT Filter Must Examine Both Sides
The Tribunal directed exclusion of Systango Technologies Ltd. because its aggregate related-party income & expenditure exceeded the TPO’s 15% RPT threshold.
Similarly, Ezee Technosys Pvt. Ltd. was excluded. The TPO had applied the RPT filter separately to only one side of the profit & loss account. The Tribunal held that both related-party income & related-party expenditure influence profitability. Therefore, the filter must be applied to the aggregate RPTs across the entire profit & loss account.
Congo Software Pvt. Ltd. was excluded due to inconsistencies in its financial statements, Net4Nuts Ltd. due to substantial intangibles relative to its revenue & IDS Infotech Ltd. because it was engaged in ITeS rather than software development.
ITAT’s Decision
The AO was directed to recompute the margins after excluding the specified comparables, giving effect to the treatment of rent as operating expenditure after verification & deleting the receivables-interest adjustment. The assessee’s appeal was partly allowed.
Author’s Comments
The order reinforces that transfer pricing is a comparison of economic realities, not industry labels. A captive, low-risk software service provider cannot be compared with branded enterprises owning valuable intangibles or offering diversified, high-end services merely because their annual reports contain the word “software”.
The ruling on receivables is equally practical: interest begins when credit ends—not merely because an invoice appears under “outstanding receivables” on the balance-sheet date.
Cases Discussed / Relied Upon
- CIT v. Roca Bathroom Products (P.) Ltd., [2022] 445 ITR 537 (Mad.) — referred to in connection with the limitation/“ROCA issue”.
- Shelf Drilling Ron Tappmeyer Ltd. v. ACIT, [2023] 457 ITR 161 (Bombay) — referred to in connection with the limitation issue under sections 144C and 153.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
01. This appeal by Quotient Technology India Private Limited [the Assessee/Appellant] relates to Assessment Year 2022-23 and is directed against the assessment order dated 18 November 2025, passed under section 143(3) read with sections 144C (13) and 144B of the Income-tax Act, 1961 [the Act]. In that order, the assessee’s returned income of ₹48,091,490 was assessed at ₹110,547,427, with an addition of ₹62,455,937 on account of a variation in the length price of the international transaction entered into by the assessee. The assessment order was passed pursuant to the directions of the learned Dispute Resolution Panel-2, Bengaluru [the Ld. DRP], dated 17 October 2025, following the draft assessment order dated 17 January 2025 under section 144C (1) of the Act, which incorporated the order dated 12 December 2024 passed by the Deputy Commissioner of Income-tax, Transfer Pricing-2(1)(2), Bengaluru [the Ld. TPO].
02. The Assessee has raised the following grounds of appeal:
General Grounds:
1. The Order of the Learned Assessing Officer (‘AO’), learned Transfer Pricing Officer (‘TPO’) and the Honourable Dispute Resolution Panel (‘Hon’ble DRP) in so far as it is prejudicial to the interest of the Appellant is not justified under the facts and circumstances of the case and in law and is liable to be quashed.
2. The learned AO learned TPO and the Hon’ble DRP are not justified in law and on facts and circumstances of the case, in adjusting the Transfer Price (“TP”) by Rs. 6,24,55,937/- with respect to the international transactions undertaken by the Appellant, under section 92CA of the Income Tax Act, 1961 (“the Act”).
3. Ground relating to the Assessment Order under section 143(3) read with section 144C (13) being barred by limitation:
3.1 The learned AO has erred in issuing the assessment order under section 143(3) r.w.s 144C (13), beyond the limitation period under section 153. The assessment order hence is bad in law, void ab initio and liable to be quashed.
4. Grounds relating to the profit level indicator (‘PLI’) of the Appellant:
4.1 The Hon’ble DRP is not justified in upholding the action of the Learned TPO/AO in disregarding the Assessee’s PLI computation and incorrectly recomputing the PLI by excluding rates and taxes amounting to Rs. 2,06,290 as non-operating in nature.
5. Grounds relating to non-compliance with binding directions of the Hon’ble DRP
5.1 The learned Assessing Officer (AO) erred in law and on facts in not giving effect to the binding directions issued by the Hon’ble Dispute Resolution Panel under section 144C (5) of the Income-tax Act, 1961.
5.2 The Hon’ble DRP had specifically directed the exclusion of certain comparable companies from the final set of comparables, however, the learned Assessing Officer failed to exclude such comparables while passing the final assessment order, thereby rendering the impugned assessment order bad in law, void ab initio, and liable to be quashed. The following are the comparable companies which were directed to be excluded by the Hon’ble DRP, but were included by the learned AO in the final list of comparable companies:
a. Infosys Ltd
b. Tata Consultancy Services
c. Wipro Ltd
d. Mindtree Lid
e. LTImindtree Lid
f. Athenahealth Pvt. Ltd
5.3 The learned AO has acted beyond jurisdiction by re-introducing / retaining the comparable companies which were expressly directed to be excluded by the Hon’ble DRP, thereby rendering the impugned transfer pricing adjustment arbitrary, unlawful and contrary to the statutory scheme of section 144C.
6. Grounds relating to the fresh comparability analysis conducted by the learned TPO
6.1 The Hon’ble DRP is not justified in upholding the action of the learned TPO/AO in rejecting the comparability analysis undertaken in the TP documentation and in conducting a fresh comparability analysis by introducing various filters for the purpose of determining the Arm’s Length Price (‘ALP’) of the international transaction thereby following a non-transparent approach.
6.2 The comparability analysis undertaken by the learned TPO/AO is not in accordance with the Transfer Pricing guidelines laid under the Act and the Income-tax, Rules 1962 (‘Rules’). The comparability analysis so undertaken by the learned TPO is bad in law and liable to be quashed.
6.3 The Hon’ble DRP is not justified in upholding the action of the learned TPO/AO of not applying the upper limit for the turnover filter. The learned TPO/Hon’ble DRP failed in not appreciating that since lower limit on the turnover filter has been accepted by both the Appellant and the learned TPO, similar filter should also be applied on the upper limit on turnover while carrying out the comparability analysis.
6.4 The Hon’ble DRP is not justified in upholding the action of the learned TPO/AO in rejecting the companies having employee cost of less than 25% of total cost.
6.5 The Hon’ble DRP is not justified in upholding the action of the learned TPO/AO applying the filter of companies having different accounting year to reject the comparable companies.
6.6 The Hon’ble DRP is not justified in upholding the erroneous action of the learned TPO/AO by not rejecting companies reporting abnormal profits.
6.7 The Hon’ble DRP is not justified in upholding the erroneous action of the learned TPO/AO modifying persistent loss filter applied by the Appellant in TP documentation and thereby rejecting comparable companies having losses in 2 out of 3 years.
6.8 The Hon’ble DRP is not justified in upholding the erroneous action of the learned TPO/AO in the computation of Related Party Transaction (“RPT”) filter by taking only RPT Income/Total Income or RPT Expenditure/Total Expenditure instead of taking the total value of RPT transactions (RPT income + RPT Expenditure) in the numerator and sales in the denominator.
6.9 The Hon’ble DRP is not justified in upholding the erroneous action of the learned TPO/AO applying the net worth filter. The learned TPO/AO has ignored the fact that the companies with negative net worth inherently fall within the category of loss-making entities, they have been automatically excluded through this broader and larger filter.
6.10 The Hon’ble DRP is not justified in confirming the erroneous computation of operating profits of comparables by the learned TPO/AO.
7. Grounds relating to transfer pricing adjustment of Rs. 6,19,17,669 /- in Software Development
7.1 The Hon’ble DRP is not justified in upholding the transfer pricing adjustment of Rs. 6,19,17,669/- in Software Development.
7.2 The Hon’ble DRP is not justified in upholding the action of the learned TPO/AO in rejecting the following comparable companies on the basis that these companies doesn’t satisfy Functional, asset, risk (FAR) analysis applied by the learned TPO:
a) Batchmaster Software Private Limited
b) Evoke Technologies Private Limited
c) Toxsl Technologies Private Limited
d) Great Software Laboratory Private Limited (GS Lab)
7.3 The Hon’ble DRP is not justified in upholding the action of the learned TPO/AO in rejecting the TVS Infotech Limited comparable companies on the basis that company did not appear on the search matrix of the learned TPO
7.4 The Hon’ble DRP is not justified in upholding the action of the learned TPO/AO in rejecting the R Systems International Limited comparable companies on the basis that company has different financial year period.
7.5 The Hon’ble DRP is not justified in upholding the action of the learned TPO/AO in selecting the following companies as comparables:
a) Indianic Infotech Ltd
b) Sagarsoft (India) Ltd
c) Nintec Systems Ltd.
d) Apttus Software Pvt. Ltd
e) QSG Technologies Pvt. Ltd
f) Happiest Minds Technologies Ltd
g) Systango Technologies Ltd
h) Tata Elxsi Ltd
i) Net4Nuts Lid
j) Robosoft Technologies Pvt. Ltd
k) IDS Infotech Ltd
l) Ezee Technosys Pvt. Ltd
m) Cybage Software Pvt Ltd
8. Grounds regarding the transfer pricing adjustment of Rs 5,38,268/- qua interest on outstanding receivables
8.1 The Hon’ble DRP is not justified in upholding the action of the learned TPO/AO in charging notional interest amounting to INR 5,38,268 in relation to outstanding receivables due from Associated Enterprise (‘AE’).
8.2 The Hon’ble DRP and learned TPO/AO have failed to appreciate that the outstanding receivables from AEs arise from the provision of services and shall be considered as closely linked to such transaction and should not be considered as a separate international transaction.
8.3 The Hon’ble DRP and learned TPO are not justified in not providing working capital adjustment (in place of imputing interest on outstanding receivables) while such outstanding receivables would be subsumed in the working capital adjustment.
8.4 The Hon’ble DRP and learned TPO/AO are not justified in not considering that receivable cannot be considered as international transaction and it does not fall with the preview of capital financing.
8.5 The Hon’ble DRP and the Learned TPO/AO are not appreciating the fact that the Act provides for taxing only real income whether received or accrued under the normal provisions.
8.6 The Hon’ble DRP and Learned TPO/AO are not appreciating the fact that transfer pricing adjustment cannot be made on hypothetical and notional basis until and unless there is some material on record that there has been under charging of real income.
8.7 The Hon’ble DRP and Learned TPO/AO are in charging notional interest on receivables without appreciating the fact that the Assessee does not have any cost of debt.
8.8 The Hon’ble DRP and Learned TPO/AO recharacterizing the outstanding receivables as loan transaction and not considering the business/commercial expediencies of the arrangement thereby computing notional interest on the same.
8.9 The Hon’ble DRP and Learned TPO/AO are in not objectively selecting the interest rate while computing the interest due on outstanding receivables
8.10 The Hon’ble DRP and Learned TPO/AO are not justified in computing interest on outstanding receivables by ignoring internal comparables where no interest is being charged on the amount of outstanding receivables/payables.
9. Ground relating to non-availability of computation of income
9.1 The learned AO erred in law and on facts in passing the impugned final assessment order without furnishing the computation of total income and tax liability forming the basis of such demand, thereby rendering the assessment order arbitrary, non-speaking and unsustainable in law.
9.2 In the absence of a proper computation of income, the Appellant was unable to ascertain the basis and correctness of the demand raised, and accordingly, filed a grievance on the online Income-tax e-Grievance portal specifically seeking the computation of income for the demand raised.
9.3 The failure of the learned Assessing Officer and the departmental authorities to redress the grievance and supply the computation of income has caused serious prejudice to the Appellant, depriving the Appellant of an effective opportunity to verify, contest and comply with the impugned demand.
9.4 The absence of a computation sheet and break-up of assessed income violates the principles of natural justice, as the Appellant is left without clarity as to the basis and quantum of additions forming part of the final assessment.
03. Briefly stated, the assessee is a wholly owned subsidiary of Quotient Technology Inc. and provides software development services to its parent company. It filed its return of income on 23 November 2022, declaring total income of ₹48,091,490. The return was selected for scrutiny, and statutory notices were issued.
04. Since the assessee had entered into international transactions reported in Form 3CEB, the Assessing Officer referred the matter to the Transfer Pricing Officer for determination of the arm’s length price.
05. During the year, the assessee reported international transactions, including software development services of ₹753,886,421, recovered employee contributions under the employee stock purchase plan of ₹10,647,136, computed an amount payable under the employee stock option plan of ₹3,493,692, received reimbursements of ₹8,205,324, and disclosed other revenue of ₹18,560,177.
06. The assessee benchmarked these transactions using the transactional net margin method [TNMM] as the Most Appropriate Method, with a Profit Level Indicator [PLI] of operating profit to operating cost [OP/OC], computed at 14.81%. It applied 13 filters and selected 10 comparables from the Ace TP database. The assessee’s operating margin of 14.81% on operating cost falls within the arm’s length range of the comparable companies’ margins, which are 5.22% to 16.83%. Accordingly, the assessee’s margins can be considered to be at arm’s length, and the transfer pricing study concludes that the transactions were at arm’s length.
07. The Transfer Pricing Officer, however, held that the revenue from rates and taxes of ₹206,000 should not be included in the margin computation and accordingly recomputed the assessee’s margin at 14.85%. Accordingly, the assessee’s margin was enhanced.
08. On examining the filters, he found certain filters adopted by the assessee to be inappropriate or unacceptable, rejected the transfer pricing study report, and applied his own filters to the Prowess database using the keywords “computer software,” “software services,” and “consultancy.” He also accepted the Transactional net margin method as the Most Appropriate Method and adopted the PLI of OP/OC. He initially selected 24 comparables, with the 35th percentile margin at 20.46%, the 65th percentile margin at 35.87%, and the median margin at 25%, and issued a show cause notice.
09. The assessee objected to the rejection of its transfer pricing study and filters, the inclusion and exclusion of certain comparables, and the non-application of an upper turnover filter.
10. The Transfer Pricing Officer rejected the turnover-filter objection, noting that company size does not affect profit margins. After considering the assessee’s submissions for the software development segment, he adopted TNMM as the most appropriate method, applied the operating profit to operating cost PLI, and selected 23 comparables, with the 35th percentile margin at 20.46%, the 65th percentile margin at 34.17%, and the median margin at 24.18%. He computed the arm’s length price on the taxpayer’s operating revenue of ₹762,133,083 as ₹824,050,752, resulting in a shortfall of ₹61,917,669, and proposed an adjustment under section 92CA of the Act.
11. The Transfer Pricing Officer also noted outstanding trade receivables of ₹162,122,277 for which no interest had been benchmarked. Considering the 60-day credit period under the service agreement dated 30 November 2021, and applying LIBOR plus 450 basis points, he computed interest of ₹538,267 on six invoices, using the last six-month average rate from April 2021 to March 2022 of 0.33%. Accordingly, by order dated 12 December 2024 passed under section 92CA (3) of the Act, he proposed a total adjustment of ₹62,455,937.
12. Pursuant to the above adjustment, the learned Assessing Officer passed a draft assessment order on 17 January 2025, assessing the assessee’s total income at ₹110,547,427. The assessee filed objections before the Dispute Resolution Panel, which issued its directions on 17 October 2025. In accordance with those directions, the ld. TPO passed the order giving effect to the directions. Thereafter, the final assessment order was passed on 18 November 2025, without granting any relief to the assessee. Accordingly, the assessee’s total income remained assessed at ₹110,547,427, which is the subject of the present appeal.
13. Ground Nos. 1 and 2 are general in nature and are therefore dismissed.
14. With respect to Ground No. 3, the Appellant has raised the following Ground No. 3.1: “The learned AO has erred in issuing the assessment order under section 143(3) r.w.s 144C (13), beyond the limitation period under section 153. The assessment order hence is bad in law, void ab initio and liable to be quashed.” This ground was raised to impugn the final assessment order under section 143(3) read with section 144C (13) on the basis that it was barred by limitation. It was taken based on the decisions of the Madras High Court in CIT v. Roca Bathroom Products (P.) Ltd. [2022] 445 ITR 537 (Mad.) and the Bombay High Court in Shelf Drilling Ron Tappmeyer Ltd. vs. ACIT [2023] 457 ITR 161 (Bombay). The issue involved in relation to this ground is commonly referred to as the “ROCA issue”. The assessee submits that the Finance Act 2026 (Act’) has made certain retrospective amendments to section 144C of the Act. In the wake of these amendments, the Appellant wishes to withdraw this ground on limitation. The Appellant wishes to argue the appeal on other grounds. Ground No. 3 was not pressed and is accordingly dismissed. Thus, in view of the retrospective amendments, we dismiss this ground. :contentReference[oaicite:6]{index=6} :contentReference[oaicite:7]{index=7}
15. Ground No. 4 concerns the computation of the assessee’s profit level indicator. The learned authorised representative submitted that the learned Transfer Pricing Officer had wrongly excluded rates and taxes of ₹206,290 as non-operating item. He pointed out that, in paragraph 4.2 of the transfer pricing order, the learned Transfer Pricing Officer held that this particular Item did not arise in the ordinary course of business, was generally incurred after completion of the underlying transaction, and was not directly linked to the core transaction, and therefore treated it as extraordinary item. The learned authorised representative contended that rates and taxes form part of the assessee’s operating cost and, therefore, should also have been considered in computing its operating profit margin. He further submitted that the amount also included rent, which could not be excluded from operating cost. The learned CIT-DR agreed with this submission. We therefore direct the learned Assessing Officer to verify whether the amount shown in the profit and loss account under rates and taxes includes rent. If it does, the rent component shall not be excluded from operating item when recomputing the assessee’s margin. Ground No. 4 is accordingly allowed.
16. Ground No. 5 alleges that the learned Dispute Resolution Panel’s binding directions were not complied with by the learned AO/TPO. We find, however, that the learned Dispute Resolution Panel directed the exclusion of certain comparables, and the learned Transfer Pricing Officer excluded them while giving effect to those directions by order dated 6 November 2025. Even after such exclusion, the 35th percentile margin of the comparable set remained at 19.01% and the median margin at 24.18%, leaving the shortfall adjustment of ₹61,917,669 unchanged. Accordingly, Ground No. 5 is dismissed.
17. Ground No. 6 concerns the fresh comparability analysis carried out by the learned Transfer Pricing Officer. The only grievance pressed before us is that the rates and taxes of ₹206,290 were treated as operating in nature. Since this issue has already been considered and decided in relation to Ground No. 4.1 of the assessee’s appeal, Ground No. 6 requires no separate adjudication and is accordingly dismissed.
18. Ground No. 8 concerns the adjustment of ₹538,268 for interest on outstanding receivables, treated as a separate international transaction in respect of six invoices. The learned authorised representative submitted that the payment due dates for all six invoices fell either on 31 March 2022 or on subsequent dates, and therefore no interest could be imputed for the year under consideration, as there was no delay in the realization of the receivables during that year. The Ld. CIT DR also stated that the invoice payment due dates do not fall within this FY.
19. We have considered the rival submissions. The details furnished by the learned Transfer Pricing Officer at page 49 of 90 of the transfer pricing order show that the due dates for all six invoices were on or after 31 March 2022. Accordingly, no interest could have been input for the year, as there was no delay in the realization of the debt up to 31 March 2022. In view of these facts and after hearing both parties, Ground No. 8 is allowed, and the learned Assessing Officer is directed to delete the adjustment of ₹538,268 for interest on outstanding receivables.
20. Ground No. 7 concerns the transfer pricing adjustment of ₹6,90,17,669 in the assessee’s software development segment. Under Ground No. 7.2, the assessee challenges the learned Transfer Pricing Officer’s rejection of four comparables on the ground of functional dissimilarity and seeks their inclusion in the comparability analysis. Those are a) Batchmaster Software Private Limited, b) Evoke Technologies Private Limited, c) Toxsl Technologies Private Limited, and d) Great Software Laboratory Private Limited (GS Lab)
21. Under Ground No. 7.5, the assessee challenges the learned Transfer Pricing Officer’s selection of 13 comparables.
22. Before judging the comparability analysis, we find that the assessee, as well as the ld. TPO, has correctly delineated the actual transaction for software development services, considering the contract between the assessee and AE, and there is no dispute between them. The assessee has also not pressed before us the grievance of the rejection of its transfer pricing study report. It is apparent that the assessee’s only grievance is the inclusion or exclusion of comparable companies from the comparability analysis.
23. The Actual delineation of transaction is that Quotient US primarily generates revenue by providing digital coupons and media solutions to its customers and partners. It is an industry-leading digital marketing company that powers integrated digital promotions and media programmes for CPGs, brands and retailers. Quotient US delivers these programmes through its platforms across a broad network of digital properties, including its flagship consumer brand, Coupons.com. The network provides Quotient US with proprietary and licensed data, including retailers’ in-store POS shopper data, purchase intent and online behaviour, and location intelligence, to deliver more valuable outcomes for CPGs, retailers and consumers. Using shopper data from retail partners and Quotient US’s proprietary data and audience segments, Quotient US delivers targeted and/or personalised digital media and promotions to shoppers through its network, including its websites and mobile applications, as well as those of its publishers, retail partners and other third-party properties. Quotient India is a captive service provider, incorporated on July 04, 2014, under the Companies Act 2013. Quotient India, with its registered office in Bengaluru, is the only entity of Quotient Group in India and renders software development services to Quotient US based on detailed instructions received from Quotient US.
24. The assessee’s functions include providing support for Quotient US’s existing systems by assisting with the development of business logic and content for cross-vertical teams such as mobile applications, websites, and microsites, which are responsible for delivering content to end consumers on the application site. It supports specific data requirements for both internal teams at Quotient India and external stakeholders, including CPG and other retailers. It helps build tools and data pipelines by developing information systems using existing software tools accessible to the marketing team, campaign managers, etc., to meet data requirements. It assists in developing platforms and tools that help create coupons. It also helps Quotient US create offers and coupons. These services are provided based on specific instructions from Quotient US. Further, Quotient India provides support services by addressing any issues Quotient US’s consumers face related to the coupons created.
It provides continuous support services to the application, i.e., managing the underlying infrastructure on which the Quotient US application runs. It is responsible for dealing with infrastructure-related issues that arise when the application goes live, i.e., when it is served to customers.
25. Regarding the employment of assets, the key tangible assets employed by Quotient India as at 31 March 2022 are Office Equipment 8,08,538; Furniture and Fixtures 18,67,091; Computers 1,67,83,050; Computer servers 10,10,171; Total 2,04,68,850. Intangible Property. Based on the functional analysis, Quotient US undertakes core R&D activities at its global facilities. Quotient US is responsible for continuously enhancing existing solutions and developing new products to meet changing customer requirements. Quotient US carries out all key decisions and critical functions related to product development and investing/funding in R&D activities. Quotient India is engaged only in providing software development activities and works under the control and supervision of Quotient US. The key intangible property employed by the assessee is only Computer software of Rs. 3,08,604.
26. The learned authorised representative submitted that the assessee’s turnover was about ₹76 crore, whereas the comparison had been with companies whose turnover was many times higher, and that such companies therefore deserved to be excluded on that ground alone. He referred, in particular, to Happiest Minds Technologies Ltd., with turnover of ₹1,033 crore; Tata Elxsi Ltd., with turnover of ₹2,471 crore; Robosoft Technologies Pvt. Ltd., with turnover of ₹270 crore; and Cybage Software Pvt. Ltd., with turnover of ₹1,444 crore.
27. Regarding the difference in Assets Used, he further submitted that Happiest Minds Technologies Ltd. is an industry leader in product engineering services, digital business services, infrastructure management, and security services, and that it owns substantial intangible assets, including goodwill, unlike the assessee. With regard to Tata Elxsi Ltd., he submitted that, apart from its turnover of ₹2,471 crore, it benefits from the Tata Group’s significant brand presence and has a distinct asset base, making it incomparable with the assessee. In respect of Cybage Software Pvt. Ltd., he submitted that the company has a turnover of ₹1,444 crore and is engaged in digital marketing services, including branding, visual design, content marketing, campaign management, and creative production. He also pointed out that, according to its annual report, the company is engaged in information technology consulting and support services, as well as e-commerce and retail sales, but does not provide segmental data.
28. The learned Departmental Representative strongly supported the findings of the lower authorities. She submitted that higher turnover, by itself, does not establish a higher profit margin, and therefore the comparables cannot be excluded merely because their turnover exceeds the assessee’s turnover of ₹76 crore. She further submitted that the lower authorities had already examined and addressed the functional similarity between the assessee and the selected comparables.
29. As per rule 10B(2), for the purposes of comparing margins under TNMM, the comparability of an international transaction with an uncontrolled transaction shall be judged with reference to (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account the assets employed or to be employed and the risks assumed, by the respective parties to the transactions; (c) the contractual terms (whether or not such terms are formal or in writing) 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; (d) the 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 Government orders in force, the costs of labour and capital in the markets, the overall economic development and the level of competition, and whether the markets are wholesale or retail. Thus, each comparable needs to be tested only against the above criteria.
30. The assessee, as well as the TPO, also applies a filter to the database after entering key search words, with the sole objective of making the comparable set yield the comparable margins. The raw Upper Turnover filter is applied only to reduce the number of comparables. Of course, companies falling outside because of the Upper Turnover filter may have different characteristics and, on that basis, may be removed from the comparable set. That is perfectly the mandate of Rule 10B(2) of the Rules.
31. After a careful review of the rival contentions, it is evident that Happiest Minds Technologies Ltd. is an industry leader specializing in product engineering services, digital business solutions, infrastructure management, and security services. The company possesses substantial intangible assets, including goodwill. Therefore, it needs to be removed under the provisions of Rule 10B (2) (a).
32. Tata Elxsi Ltd., with a turnover of ₹2,471 crore, benefits from the Tata Group’s strong brand presence and has a distinct asset base. Clearly, the Tata brand is extensive and cannot be compared with the assessee’s assets, which operate as a captive unit. Thus, it needs to be removed as per rule 10B (2) (b) of The Rules.
33. Cybage Software Pvt. Ltd. has a turnover of ₹1,444 crore and offers digital marketing services such as branding, visual design, content marketing, campaign management, and creative production. Its annual report indicates that it also provides IT consulting and support services. As a result, it must be removed under Rule 10B (2) (a).
34. We do not find that Robosoft’s turnover is so high that it should be removed on that count. However, when tested against the principles of Rule 10B(2)(a) of the Act, the assessee has stated that it is engaged in providing services for building mobile applications in products that encompass mobile, social, cloud and analytics, and that it derives revenue from sources including the sale of user licences, technical services, etc., whereas the assessee’s sole source of revenue is the provision of software development services. The probe was sought, and the financial statements of Technologies Private Limited were verified, and it was found that it has revenue streams from rental and office management income, as well as from the sale of software development services. Thus, we find no functional characteristics or any other dissimilarity shown to us under Rule 10B(2) that would justify its exclusion. In our view, it is required to be excluded on this principle.
35. Therefore, we direct the ld. AO to remove the four comparables listed above from the comparability analysis.
36. With respect to the comparable of the assessee which the assessee included in its TPSR, the learned TPO found them not comparable and therefore rejected the inclusion.
37. The first comparable included by the assessee in the transfer pricing study report is Batch Master Software Private Limited. We find that the reason given by the taxpayer for its inclusion is that it is engaged in software development services, providing software solutions for various manufacturing needs.
38. The learned transfer pricing officer rejected this contention, holding that, according to the annual report of the comparable, it is involved in the design and development of customized software applications. More particularly, on checking its official website, it specializes in providing Enterprise Resource Planning (ERP) solutions tailored for process manufacturing industries such as pharmaceuticals, food & beverages, chemicals, and cosmetics. Its ERP solutions cover a wide range of functionalities, including formulation, production, quality control, inventory management, and compliance. It serves a diverse range of process manufacturing industries, with solutions designed to meet the unique needs of these sectors, providing comprehensive support for manufacturing and distribution operations. Functionally different from the taxpayer, it was therefore rejected (Source:https://www.batchmaster.com/) ) Hence, the company has not been included in the final set of comparables.
39. The assessee contended that the comparable is engaged in the business of software development and provides software services to cater for the distribution, manufacturing, financial, quality and compliance needs of various manufacturers. It has the companies functionally comparable to the assessee and should have been included in the final set of comparables.
40. The learned departmental representative referred to the direction of the learned dispute resolution panel at page No. 40 of that direction and submitted that it is not functionally comparable.
41. We have carefully considered the rival contention and find that the comparable companies involved in software products and software services, as per the financial statements submitted and perused by the learned dispute resolution panel, is engaged in providing enterprise resource planning solutions specifically tailored for process manufacturing industries such as pharmaceuticals, food and beverages, chemicals, and a host of other entities. The DRP also noted that the financial statements show, under the head of expenses, changes in inventory of finished goods and work in progress. Therefore, it is apparent that the comparable company is developing enterprise resource planning solutions and is also a product company. Further, it is involved in software support and maintenance services. Thus, we do not find any infirmity in the order of the learned lower authorities in not selecting the above company. Thus, the exclusion is in consonance with the provisions of rule 10 B (2) (b), as the functions performed and the characteristics of the property or service providers are different, and therefore no infirmity can be found in the orders of the learned lower authorities.
42. The assessee has also challenged the exclusion of Evoke Technologies Private Limited. The assessee submits that the comparable company is engaged in software development services, with a significant share of revenue from export services. The learned transfer pricing officer finds that Evoke Technologies Private Limited is not a suitable comparable, as it is a technology and consulting services provider offering a broad spectrum of services, including custom software development, IT outsourcing, and IT consulting (https://www.evoketechnologies.com). In addition, Evoke specializes in Artificial Intelligence (AI), Machine Learning (ML), Data Engineering, Cloud Computing, Low-code Platforms, and Automation. This indicates a focus on high-value, technology-driven services that are distinct from the taxpayer’s operations. The technological orientation of Evoke suggests a different functional profile compared to companies engaged in more traditional IT design and development services. The advanced technological focus of Evoke Technologies, including the use of AI/ML, Cloud Computing, and Automation, results in higher costs related to research, development, and deployment of these technologies. Additionally, pricing models for such high-end services are generally not comparable to those for traditional IT services, which typically involve lower levels of technological complexity (https://www.evoketechnologies.com/press-release/low-code-isliving-up-to-its-promises-and-ai-is-set-to-turbocharge-the-benefitsfurther-according-to-new-evoke-technologies-research/). . Evoke Technologies thus does not pass the qualitative test of comparability through functional analysis. Hence, this company has not been included in the final list of comparables.
43. The learned dispute resolution panel referred to the order of the learned transfer pricing officer and approved that analysis, noting that the comparable company is engaged in high-end services, unlike the taxpayer.
44. The learned authorised representative did not advance any argument, and therefore the order of the learned lower authorities excluding the above comparable companies cannot be disputed.
45. With respect to the direction for the inclusion of Toxsl Technologies Private Limited, the reason given by the taxpayer for inclusion was that the comparable is engaged in software development services, including application development, mobile development, web application development, and automation testing.
46. The learned transfer pricing officer held that ToXSL Technologies primarily offers services in web and mobile app development, ERP solutions, digital marketing, and artificial intelligence, which are functionally very different from the taxpayer’s business. Hence, it has been excluded as a comparable. Accordingly, this company has not been included in the final list of comparables.
47. The learned dispute resolution panel also found that the learned transfer pricing officer, by invoking the powers of enquiry under section 133(6), treated the company as self-described as being involved in consulting services. However, the assessee company is engaged in routine software development services, which are similar to those of the taxpayer. The learned dispute resolution panel also confirmed the exclusion of the above company.
48. The learned authorised representative submitted that the comparable is functionally similar, and the assessee submitted that it is engaged in the business of software development services, which include application development, Mumbai development, web application development, automation testing, etc. Therefore, the above company should be included in the final set of comparables.
49. The learned CIT DR vehemently supported the order of the learned lower authorities.
50. We have carefully considered the rival contention and perused the orders of the learned lower authorities. In this case, the learned transfer pricing officer has invoked the provisions of section 133(6) of the Act and thereafter found that this company is engaged only in the business of consultancy, and that the software development services stated by the assessee are routine and similar to those of the taxpayer. These findings are not disputed by the assessee, and therefore we do not find any infirmity in the orders of the learned lower authorities in excluding this comparable from the comparability set. This is also in consonance with the provisions of rule 10B(2)(a) of the Income Tax Rules, given the different characteristics of the services rendered.
51. Though the assessee, on grounds of appeal, challenges the exclusion of Great Software Laboratory Private Limited (GS Lab), the reason given by the taxpayer for inclusion is that the comparable company provides software development services related to cloud applications, communication, identity management, and system technologies.
52. The learned transfer pricing officer held that, according to their annual report, GS Lab focuses on designing and developing software applications tailored to client needs, as well as developing off-the-shelf software products. They offer customization services to adapt their software solutions to specific client requirements. They are not limited to a single solution like the taxpayer, which addresses only one issue, personal finance. GS Lab specializes in the design and development of software applications. GS Lab provides a broad range of digital product engineering services, which are very different from the functions performed by the taxpayer. They assist Independent Software Vendors (ISVs) and enterprises in building, deploying, and managing their digital products. Their services span the entire software development lifecycle, from ideation through design, development, execution, deployment, and support. This comprehensive approach includes technology solutions using cloud computing, the Internet of Things (IoT), analytics, and machine learning, catering to various industries such as telecommunications, manufacturing, and security. In contrast, the taxpayer focuses exclusively on personal finance management software. Their product suite is designed to address specific needs related to personal finance, such as budgeting, investment tracking, and bill payment. (Information collected from: :contentReference[oaicite:11]{index=11}) GS Lab caters to a broad spectrum of industries, including technology, telecommunications, healthcare, financial services, real estate, and manufacturing. Its solutions are designed to address the diverse needs of multiple sectors, thereby mitigating risks associated with downturns in any single industry. GS Lab and the taxpayer operate in fundamentally different business domains, with different business models and strategies, and cannot be compared for transfer pricing analysis.
53. The learned dispute resolution panel confirmed the finding of the learned TPO, which is supported by the learned CIT DR and is not specifically objected to by the assessee. We confirm the orders of the learned lower authorities.
54. Accordingly, ground No. 7.2 of the appeal is decided as indicated above.
55. The ground No. 7.5 of the appeal concerns the direction of the learned dispute resolution panel, which holds that the Ld. DRP is not justified in upholding the action of the learned TPO/AO in selecting some companies as comparables. Thereafter, the assessee has challenged 13 comparables. Out of these, we have already directed the learned AO to exclude Happiest Mind Technologies Ltd, Tata Elxios Limited, Robo Soft Technologies Ltd and Cybage Software Private Limited on different grounds.
56. The assessee has challenged the inclusion of Congo Software Private Limited, formerly known as Apptus Software Private Limited, in the learned transfer pricing officer’s comparability analysis. The company did not pass the related-party filter because it reported no transactions in Form No. AOC – 2, and therefore the comparable company’s annual accounts were found to be inconsistent. The assessee also claims that the company’s financial statements do not provide complete details and cannot be relied upon and refers to the company’s website. However, we are not concerned with functional dissimilarity; rather, in this case, there appear to be inconsistencies in the financial statements of the comparable company, and therefore it deserves to be excluded.
57. We also come to the next comparable, Systango Technologies Ltd, which also fails the RPT filter. It was stated that the company has incurred expenses of rupees one .03 crores towards related parties and has also earned income of ₹ 4.56 crores from related parties. Therefore, the aggregate level of transactions with related parties exceeds 15% of the total turnover of the company, and this company fails the related party filter. The learned authorised representative also referred to the chart given separately. This could not be controverted by the learned departmental representative. Therefore, as it fails the filters adopted by the learned transfer pricing officer, we direct the learned assessing officer to remove this comparable company as it fails the related party transaction filter of 15%.
58. The next comparable company was stated to be net4NutLtd, and the learned transfer pricing officer included this comparable company after it passed all the filters, a finding also confirmed by the learned dispute resolution panel. However, before us, the learned authorised representative submitted that it is engaged in providing consultancy services, including product engineering and software development, to its clients. Further, he referred to the company’s website, which states that it is engaged in offshore engineering and team augmentation, including the design, architecture, development, and maintenance of high-availability software product solutions. It further states that it has significant intangibles of rupees 1.87 crores in the form of various trademarks and further information services integration platform. The learned departmental representative could not dispute that this company has significant intangibles, whereas its revenue is only Rs. 2.67 crores, and that the intangibles of Rs. 1.87 crores in the form of a trademark are substantial relative to its revenue. Therefore, according to rule 10 B (2) (b) of the Act, there is a difference between the assets employed and the revenue generated by this company, and accordingly, it is required to be excluded.
59. The assessee also challenges IDS Infotech Limited, which is stated to provide ITeS services and is not a software development company. This fact is said to be derived from the company’s own annual accounts, which state that it is engaged in providing ITeS services and that there is no income from software development activity. Therefore, under rule 10 B (2) (a), the specific characteristics of the services rendered are similar, and it therefore deserves to be excluded.
60. With respect to Ezzy Technologies Private Limited, which is stated to have a turnover of Rs. 34.37 crores, the learned TPO holds that it passes all the filters, and this is further confirmed by the learned dispute resolution panel. The learned dispute resolution panel directed the learned transfer pricing officer to exclude the margins for the financial year 2019 – 20 due to abnormal profits. Now the assessee is challenging that it should be excluded further on the ground of the functional same polarity, as it fails the RPT filter and is an abnormal profit. In this case also, the company has incurred expenses of Rs.2.86 crores towards related parties and has earned income of ₹ 4.08 crores from related parties. It is apparent that the learned transfer pricing officer has applied the RPT filter to one side of the profit and loss account and excluded the other side, whereas the assessee is challenging that the RPT filter should be applied to the whole of the profit and loss statement. We find that the company’s profit/margins are impacted by both the debit and credit sides of the profit and loss account, not only on one side of the profit and loss account. Therefore, we agree with the counsel that this company should have been excluded to process the 15% filters adopted by the learned transfer pricing officer. This is only because the assessee as well as the learned transfer pricing officer has a different mechanism of applying the RPT filter. We agree with the RPT filter applied by the assessee to the whole of the profit and loss statement with respect to the transactions with related party and therefore it is directed to be excluded.
61. With respect to the other comparable, no arguments were advanced before us and therefore the same are dismissed.
62. Accordingly, ground No. 7.5 of the appeal is allowed, as indicated above, to the extent of the exclusion or inclusion of the above comparable.
63. Ground No. 9 is not contested before us and therefore same is dismissed.
64. In the result, we direct the learned Assessing Officer to recompute the margins of the comparables as indicated above and determine the difference, if any, from the arm’s length price. Accordingly, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 10/09/2026.
