M/S. WINWIRE TECHNOLOGIES INDIA PRIVATE LIMITED,HYDERABAD vs. DCIT, CIRCLE-8(1), HYDERABAD

For that the Order of the Learned Assessing Officer ('Learned AO) u/s. 143(3) r.w.s.144C(13) r.ws 1448 of the Income Tax Act, 1961 is opposed to law, facts and circumstances of the case

Issue No.1: Upward adjustment of Rs. 10,25,20,700/- in respect of Sale of IT/ Software Development Services to its Associated Enterprise.

For that the Learned TPO/ Learned AO and Hon'ble DRP erred in upholding the upward adjustment of Rs. 10,25,20,700/- in respect of Sale of IT/ Software Development Services to its Associated Enterprise

For that the Learned TPO/ Learned AO and Hon'ble DRP erred in rejecting the Transfer Pricing study of the applicant, despite non- satisfaction of the conditions laid down in section 92C(3) of the Act.

For that the Learned TPO/ Learned AO and Hon'ble DRP ought to have appreciated the fact that the uncontrolled comparables adopted in the Transfer Pricing Study of the applicant had invariably satisfied the filters criteria adopted by TPO

For that the Learned TPO/ Learned AD and Hon'ble DRP ought not have included companies with disproportionately high turnover compared to the applicant in the set of uncontrolled comparables, particularly when companies with turnover below Rs. 1 crore were excluded due to their extreme fluctuations

Fort that the Learned TPO/Leamed AO, and Hon'ble DRP erred in disregarding the applicant's submissions highlighting the functional dissimilarities between the companies selected by the TPO and the applicant, resulting in an incorrect determination of the median Profit Level Indicator at 23.97%

For that the Learned TPO/Learned AO and Hon'ble DRP erred in not restricting the Transfer Pricing adjustment to the extent of the margins retained by the Associated Enterprises.

Issue No.2: Upward adjustment of Rs. 23,10,582/- in respect of interest of delayed trade receivables

For that the Learned TPO/ Learned AO/ Hon'ble DRP erred in upholding the Upward adjustment of Rs.23,10,582/- in respect of interest on delayed Trade Receivables

For that the Learned TPO/Learned AO, and Hon'ble DRP ought to have duly considered the 90-day credit period granted by the applicant to its Associated Enterprise (AE) while determining the appropriate adjustment, instead of arbitrarily applying a 30-day period, which resulted in an erroneous adjustment that fails to reflect the true economic reality of the transaction.

For that the Learned TPO/ Learned AO/ Hon'ble DRP ought to have appreciated the fact that the TNMM provides most reliable measure to evidence Arm's Length Price and no separate benchmarking for trade receivables was required, as the TNMM inherently accounts for notional costs.”

The brief facts of the case are that, the assessee is a wholly owned subsidiary of Winwire Technologies Inc., which is based in United States of America. It is a global consulting company dedicated to leveraging the Microsoft technology platform to help companies in the Microsoft ecosystem get most out of their technology investments and enhance their business. The assessee company is a captive service provider, executes development activities at its development centres located in Hyderabad and Bangalore, and also provides inside sales services and recruitment services to its Associated Enterprises. The assessee company had filed its return of income for the A.Y. 2022-23 on 29.11.2022, declaring total income of Rs.15,83,88,780/- The assessee company has also filed audit report in Form No.3CEB and reported international transactions with its A.E. As per Form No.3CEB filed by the assessee company, it has reported international transactions with its A.E. in relation to provision of software services and development services for Rs. 1,23,31,96,708/-. The assessee company has benchmarked international transactions with its A.E. by adopting Transactional Net Margin Method (TNMM) as the most appropriate method with OP/OC as Profit Level Indicator (PLI). The assessee company has computed PLI of 13.58%. The assessee company has selected 24 comparables and claimed that, transactions with its A.E. are at arm’s length price.

During the course of assessment proceedings, a reference was made to the learned Transfer Pricing Officer (for short “TPO”) to determine the arm’s length price of international transactions of the assessee company with its associated enterprise. During the course of transfer pricing proceedings, the learned TPO rejected the Transfer Pricing Study Report submitted by the assessee company and conducted fresh TP analysis by applying certain filters and has finally selected 22 comparables with 35th percentile of 23.23% and 65th percentile of 34.67% and median of 26.15%. The learned TPO, after considering the PLI computed by the assessee company, suggested upward adjustment of Rs.10,25,20,700/- in respect of sale of IT/Software development services. Further, the learned TPO also suggested upward adjustment of Rs.23,10,582/- in respect of interest on delayed trade receivables from A.E. by allowing standard credit period of 30 days and computed interest by applying SBI short-term deposit rate. Thereafter, the A.O. passed a draft assessment order under section 144C(1) of the Act, 1961 on 31.01.2025 and proposed TP adjustment as suggested by the learned TPO at Rs.10,48,31,282/-.

The assessee company has filed objections against the draft assessment order passed by the A.O. before the learned DRP-1, Bangalore, and raised various objections, including rejection of TP documentation, adoption of certain filters, selection of comparables, and also computation of interest on delayed trade receivables from the A.E. The learned DRP-1, Bangalore, vide its directions dated 29.10.2025 issued under section 144C(5) of the Act, rejected the objections filed by the assessee company and upheld the TP adjustment proposed by the learned TPO. Thereafter, the A.O. passed the final assessment order under section 143(3) r.w.s. 144C(13) of the Act, dated 19.11.2025 and determined total income at Rs.26,32,20,070/- by making addition of Rs.10,48,31,282/- towards upward adjustments suggested by the learned TPO in respect of provision of IT Services and interest receivable on delayed trade receivables from A.E.

Aggrieved by the final assessment order passed by the A.O., the assessee company is now in appeal before the Tribunal.

The learned counsel for the assessee company, Shri B. Ramakrishnan, referring to TP adjustment made by the A.O. in respect of provision of IT services/software development services of Rs.10,25,20,700/-, submitted that, the A.O. has selected final set of 22 comparables which includes, companies like Infosys Ltd, LTI Mindtree Ltd., Wipro Ltd., and Cybage Software Pvt. Ltd., which are giant software companies having turnover of more than ten times that of the assessee company and therefore, are not comparable to the assessee company for the purpose of determining ALP of international transactions. The learned counsel further, referring to the turnover of the assessee company, submitted that, the assessee company has reported turnover of Rs.123,32,00,000/- for the assessment year under consideration, whereas the turnover of the above four companies, is in several crores, which is more than ten times that of the assessee company. Since the above four companies are not satisfying the turnover filter, if we apply ten times on either side, the A.O. ought not to have selected the above four companies for the purpose of comparability analysis, and therefore, he submitted that, the above four companies should be excluded from the list of final comparables. In this regard, he relied upon the decision of the ITAT, Hyderabad Bench in the case of DGS Technical Services Pvt. Limited, CG-VA Software & Exports Limited, etc., submitted that, the learned TPO has wrongly considered the above companies for the purpose of comparability analysis, even though the FAR analysis of the above companies is different from the FAR of the assessee company, which is evident from the relevant annual reports of the above companies, where most of the companies are engaged in product development and KPO services, whereas the assessee company is engaged in providing captive services to its A.E. in the field of Information Technology Services and Software Development Services. Therefore, he submitted that the companies selected by the learned TPO are not comparable with the assessee company and thus, the issue may be set aside to the file of the learned A.O./TPO for fresh TP study and for selection of appropriate comparables for the purpose of determining ALP of international transactions with its A.E. in respect of provision of IT Services / Software development services.

The learned CIT-DR, Dr. Narendra Kumar Naik, on the other hand, supporting the order of the learned TPO, submitted that, the DRP has considered all the arguments of the assessee company, including the turnover filter applied by the learned TPO, and held that higher turnover alone is not a criteria for exclusion of any company if other conditions are satisfied, including FAR analysis. Therefore, the argument of the assessee company that Infosys Ltd, LTI Mindtree Ltd., Wipro Ltd., and Cybage Software Pvt. Ltd., should be excluded from the list of comparables is incorrect. The learned CIT-DR further submitted that, in respect of other companies, the A.O./TPO has selected such companies by applying proper filters, including filter of 75% of revenue from software development services, and from the above, it is very clear that the above companies are engaged in the business of providing IT Services/Software development services and therefore, even if they provide software development services to different verticals of industries, it does not mean that the said companies are not engaged in the business of IT Services/Software development services. Therefore, the argument of the learned counsel for the assessee company that the companies selected by the learned TPO are not functionally comparable to the assessee company is a general argument without any supporting evidence, and therefore, the same is liable to be rejected.

We have heard both parties, perused the material available on record and had gone through the orders passed by the authorities below. We have also considered the relevant case laws cited by the learned counsel for the assessee company in support of his arguments on the issue of selection of comparables. Insofar as the first argument of the learned counsel for the assessee company that high turnover companies cannot be included in the list of comparables, because the giant companies operate in different circumstances and their magnitude of operations and large scale of operations make them incomparable with a company which is providing captive services to its A.E. in the field of IT Services/Software development services. We find that an identical issue has been considered by ITAT, Hyderabad in the case of DGS crores, the turnover of LTI Mindtree Ltd. is Rs. 24,845 crores, and that of Cybage Software Pvt. Ltd. is Rs. 1,445 crores. If we compare the turnover of the assessee company with that of the above four companies, in our considered view, the above four companies fail the turnover filter, and therefore, the learned TPO ought not to have included the above four companies in the list of final set of comparables, as held by the ITAT, Hyderabad Bench in the case of DGS Technical Services Pvt. Ltd. (supra) and also in the case of ADP Private Limited Vs. DCIT in ITA Nos.227 and 228/Hyd/2024. A similar view has been taken by the Hon’ble Ltd. reported in (2016), 69 taxmann.com 180 (Bombay) where the Hon'ble High Court held that large and distinct companies where area of development of subject services was different and as such profit earned therefrom could not be equated with assessee company and hence, the above companies are not comparable with assessee company. The sum and substance of the ratio laid down by the coordinate bench of the Tribunal and the Hon’ble Bombay High Court is that when we apply turnover filter, it should be either side of ten times the turnover of the comparable company, and therefore, if any company fails turnover filter on either side of ten times, then such companies should be excluded from the list of comparables. Since the above companies fail the turnover filter, in our considered view, the learned TPO ought not to have included Infosys Ltd., Wipro Ltd., LTI Mindtree Ltd., and Cybage Software Pvt. Ltd., in the list of comparables. Thus, we direct the learned TPO to exclude the above four companies from the final set of comparables.

Coming back to the issue of functional comparability of the remaining companies selected by the learned TPO, after excluding Infosys Ltd., LTIMindtree Ltd., Wipro Ltd., and Cybage Software Pvt. Ltd., and upheld by the learned DRP. The learned TPO has selected the said companies and claimed that, the FAR analysis of the above companies is similar to that of the assessee company. It was the argument of the learned counsel for the assessee company that if we go through the annual reports of the above companies, most of the companies are involved in diversified activities, including product development, agency services, and consultancy services where the assessee company is a captive service provider to its A.E. for IT Services and Software development services and therefore, the assessee company cannot be compared with the above companies. We find that, the learned counsel for the assessee company has furnished extracts of annual reports of above comparable selected by the learned TPO and upon perusal of relevant extracts, we find that, in the annual reports, it was disclosed that the said companies are engaged in various services which are different from the services rendered by the assessee company to its A.E. Although the nature of services provided by any company cannot be identified from the disclosures made in the annual reports, but the arguments of the learned counsel for the assessee company require verification in light of complete annual reports of the said companies to ascertain the exact nature of services provided by the companies selected by the learned TPO and whether the FAR analysis of the above companies is identical with that of the assessee company or not.

The next issue that came up for our consideration from ground No.3 of the assessee’s appeal is upward adjustment of Rs.23,10,582/- in respect of delayed trade receivables from associated enterprise. The learned counsel for the assessee company submitted that, the learned TPO has erred in treating trade receivables from A.E. as a separate international transaction, when the assessee company has adopted TNMM for the purpose of benchmarking analysis of transactions with its A.E. The learned counsel for the assessee company further submitted that, if at all trade receivables from A.E. are treated as a separate transaction, then for the purpose of computing ALP, the A.O./TPO should allow a credit period of 60 days and compute interest wherever the credit period allowed by the assessee company to its A.E. is beyond the standard credit period of 60 days. In this regard, he relied upon the decision of the ITAT, Hyderabad Bench in the case of DGS Technical Services Pvt. Ltd. Vs. DCIT (supra).

The learned CIT-DR, on the other hand, supporting the order of the learned A.O./TPO submitted that, trade receivables from A.E. is a separate international transaction and the same should be benchmarked by applying appropriate rate of interest and credit period. Since the assessee company has allowed long credit period to its A.E., the learned TPO has rightly allowed standard credit period of 30 days and computed interest by applying SBI short-term deposit interest rate. Therefore, he submitted that, the order of the learned A.O./TPO should be upheld.

We have heard both parties, perused the material available on record and had gone through the orders passed by the authorities below. The A.O. computed the interest on delayed receivables from A.E. by applying SBI short-term deposit rate and allowing credit period of 30 days. Although, the learned counsel for the assessee company argued that trade receivables from A.E. is not a separate international transaction, but fact remains that the issue is now settled by various decisions of the Tribunal, including the decision of the ITAT, Hyderabad Bench in the case of DGS Technical Services Pvt. Ltd. (supra), wherein it has been clearly held that trade receivables from A.E. constitute a separate international transaction and the same needs to be benchmarked. Therefore, we reject the arguments of the learned counsel for the assessee company that trade receivables from A.E., is not a separate transaction. Insofar as computation of interest on delayed trade receivables is concerned, the A.O. has applied SBI short-term deposit rate after allowing standard credit period of 30 days. It is a well established principle of law by various judicial precedents, including the decision in the case of DGS Technical Services Pvt. Ltd. (supra), where the Tribunal has allowed standard credit period of 60 days for the purpose of imputing interest on delayed trade receivables from A.E. Therefore, by following the decision of the ITAT, Hyderabad Bench in the case of DGS Technical Services Pvt. Ltd. vs DCIT (supra), we direct the A.O./TPO to recompute interest on delayed receivables from A.E. by allowing credit period of 60 days and impute interest wherever the assessee company has allowed credit period beyond 60 days.

In the result, the appeal filed by the assessee company is partly allowed for statistical purposes.

The Principal Commissioner of Income Tax, (IT & TP), Hyderabad.

The Disputes Resolution Panel-1, Bangalore 5. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 6. गधर्ाफ़धईल / Guard file