MARLABS INNOVATIONS PRIVATE LIMITED,BANGALORE vs. DCIT, CIRCLE 4(1)(1) - BANGALORE, BANGALORE

During the hearing, the learned Authorised Representative (“learned AR”), at the outset, submitted that the impugned final assessment order is not in conformity with the directions issued by the learned DRP, and therefore, is in contravention of the provisions of section 144C(13) of the Act.

On the other hand, the learned Departmental Representative duly supported the final assessment order passed in the present case.

We have considered the submissions of both sides and perused the materials available on record. The brief facts of the case are that the assessee is engaged in the business of Custom Software Application Development, IT-enabled services mainly relating to legal support, IT support, accounting support, human resource services, and IT consulting. For the year under consideration, the assessee filed its return of income on 28.11.2022, declaring a total income of Rs. 35,94,83,750/-. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. Pursuant to the reference made to the Transfer Pricing Officer (“TPO”), an order under section 92CA(3) of the Act was passed on 10.01.2025 proposing a transfer pricing adjustment of Rs. 23,16,49,912/-. In conformity with the order passed by the TPO, the Assessing Officer (“AO”) vide draft assessment order dated 19.03.2025 proposed to assess the total income of the assessee at Rs. 59,29,35,662/-, after inter alia making an addition on account of transfer pricing adjustment proposed by the TPO.

Being aggrieved by the addition/adjustments proposed by the TPO/AO, the assessee filed detailed objections before the learned DRP. Vide its directions dated 03.12.2025 issued under section 144C(5) of the Act, the learned DRP, inter alia, partially agreed with the submissions of the assessee.

The AO vide final assessment order, proceeded to assess the total income of the assessee at Rs. 59,29,35,662/-, i.e., equivalent to the total income proposed vide draft assessment order on the basis that the learned DRP vide its directions rejected the grounds of objections filed by the assessee. Thus, the AO held that the addition made in the draft assessment order stands. Being aggrieved, the assessee is in appeal before us.

During the hearing, the learned AR submitted that the TPO vide order dated 24.12.2025 gave effect to the directions issued by the DRP, and consequently, the transfer pricing adjustment in respect of the Software Development Segment was reduced to NIL as against the adjustment of Rs. 15,88,10,000/- proposed by the TPO vide order passed under section 92CA(3) of the Act. The learned AR submitted that the transfer pricing adjustments in respect of the ITeS segment and interest on delayed receivables remained the same even after giving effect to the directions Page 3 of 7 issued by the learned DRP under section 144C(5) of the Act. The learned AR submitted that the impugned final assessment order passed by the AO is thus not in conformity with various directions issued by the learned DRP. In support of its contention, the learned AR placed reliance upon the decisions of the Hon’ble Jurisdictional High Court in PCIT vs. Flextronics Technologies (India)(P.)Ltd., reported in [2023] 459 ITR 493 (Karnataka) and PCIT vs. M/S VMWARE Software India Pvt. Ltd., in ITA No. 221/2023.

On the contrary, the learned DR placed reliance upon the decision of the Coordinate Delhi Bench of the Tribunal in Hitachi Astemo Haryana Private Limited vs. DCIT, in ITA No. 1005/Delhi/2022, vide order dated 23.11.2023.

Having considered submissions of both sides and perused the material available on record in the present case it is ostensible that the AO vide final assessment order assessed the total income of the assessee equivalent to the total income proposed vide draft assessment order on the basis that the grounds of objections raised by the assessee before the learned DRP were rejected vide directions issued under section 144C(5) of the Act. However, on the contrary, we find that the TPO, vide its order dated 24.12.2025, giving effect to the various directions issued by the learned DRP, computed the total transfer pricing adjustment at Rs. 6,71,47,000/-, thereby granting a relief of Rs. 16,45,02,912/-. Therefore, from the perusal of the order giving effect passed by the TPO pursuant to the directions issued by the learned DRP, it is evident that the learned DRP granted partial relief to the assessee as against the findings of the AO vide final assessment order that the objections filed by the assessee were rejected by the learned DRP.

Since the AO passed the impugned final assessment order not in compliance with the specific directions of the learned DRP, respectfully following the decisions of the Hon’ble Jurisdictional High Court cited supra, we of the considered view that the same is in clear violation of the provisions of section 144C(13) of the Act which specifically mandates the passing of a final assessment order in conformity with the directions issued by the learned DRP.

As regards the decision of the Coordinate Delhi Bench of the Tribunal, as relied upon by the learned DR, we find that the Coordinate Bench, following the decision of the Hon’ble Delhi High Court, restored the matter to the file of the AO to give effect to the directions issued by the learned DRP. We further find that the decision of the Hon’ble Karnataka High Court in Flextronics Technologies (India)(P.)Ltd.(supra) was relied upon by the taxpayer in the said case. However, the Coordinate Delhi Bench of the Tribunal instead followed the decision of the Hon’ble Delhi High Court, being the Jurisdictional Hon’ble High Court in the said case. As this Bench is covered under the Jurisdiction of the Hon’ble Karnataka High Court, the decisions of the Hon’ble Karnataka High Court cited supra are binding on it, being the judicial pronouncements by the Jurisdictional Hon’ble High Court.

We further find that in a Special Leave Petition filed by the Revenue against the decision of the Hon’ble Jurisdictional High Court in M/S VMWARE Software India Pvt. Ltd. (supra), the Hon’ble Supreme Court vide its order dated 14.11.2024 passed in SLP(C) Diary No.47414 of 2024 dismissed the Special Leave Petition, finding no good reason to interfere with the decision of the Hon’ble High Court rendered in ITA No. 221/2023. Therefore, respectfully following the decisions of the Hon’ble Jurisdictional Karnataka High Court cited supra, the final assessment order passed by the AO is quashed.

Since the relief has been granted to the assessee on this short issue, the other grounds raised by the assessee are rendered academic and therefore are kept upon.

In the result, the appeal by the assessee is allowed. Order pronounced in the open court on 8th June, 2026.