ENTAIN SOFTWARE DEVELOPMENT SERVICES (INDIA) PVT LTD (FORMERLY KNOWN AS IVY SOFTWARE DEVELOPMENT SERVICES PVT LTD),HYDERABAD vs. DCIT., CIRCLE 2(1), HYDERABAD

आयकर अपील�य अ�धकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A ‘ Bench, Hyderabad �ी �वजय पाल राव, उपा� य� एवं �ी मधुसूदन साव�डया, लेखा सद� य के सम� । Before Shri Vijay Pal Rao, Vice-President A N D Shri Madhusudan Sawdia, Accountant Member आ.अपी.सं /ITA No. 762/Hyd/2024 (िनधा�रण वष�/Assessment Year: 2020-21) Entain Software Vs. Deputy Commissioner Development Services of Income Tax (India) Private Limited Circle 2(1) (formerly known as IVY Hyderabad Software Development Services (P) Ltd Hyderabad PAN:AADCI6283R (Appellant) (Respondent) िनधा�रती �ारा/Assessee by: Advocate D. Prabhakar Reddy राज� व �ारा/Revenue by:: Smt. U. Mini Chandran, CIT (DR) सुनवाई की तारीख/Date of hearing: 12/05/2026 घोषणा की तारीख/Pronouncement: 29/05/2026 आदेश/ORDER Per Madhusudan Sawdia, A.M.: This appeal is filed by Entain Software Development Services (India) Private Limited (formerly known as IVY Software Development Services Private Limited (“the assessee”), feeling aggrieved by the final assessment order passed by the Learned Assessing Officer (“Ld. A.O”) under

section 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (“the Act”) dated 14.06.2024 for the A.Y.2020-21.

adjustment on account of SDS amounting to Rs.10,05,17,105/- and on account of interest on trade receivables amounting to Rs.26,99,532/-. Accordingly, the Ld. AO passed draft assessment order dated 15.09.2023 under section 143(3) r.w.s. 144B and 144C(1) of the Act proposing total addition of Rs.10,32,16,637/-. 4. Aggrieved by the draft assessment order, the assessee filed objections before the Learned Dispute Resolution Panel (“Ld. DRP”). The Ld. DRP issued directions under section 144C(5) of the Act on 22.05.2024 and thereafter the Ld. TPO passed order giving effect to the directions of the Ld. DRP on 12.06.2024. After passing of the order by the Ld. TPO giving effect to the directions of the Ld. DRP, the Ld. AO passed final assessment order under section 143(3) r.w.s. 144C(13) and 144B of the Act on 14.06.2024 making adjustment of Rs.7,14,74,670/- on account of SDS and Rs.26,99,532/- on account of interest on trade receivables, thereby assessing the total income of the assessee at Rs.45,13,73,632/-. 5. Aggrieved by the final assessment order of the Ld. AO, the assessee is in appeal before this Tribunal. At the outset, the Learned Authorized Representative (“Ld. AR”) submitted that the assessee is not pressing Ground Nos.1, 5, 7, 8, 10, 11 and 12 raised in the appeal. With regard to Ground No.2, the Ld. AR submitted that the assessee is pressing only the issue relating to adoption of different financial year filter by the Ld. TPO with regard to exclusion of R Systems International Limited from the list of comparables. 6. Under Ground No.3, the assessee is pressing exclusion of Nihilent Technologies Limited, Tata Elxsi Limited,

Cybage Software Private Limited, Infosys Limited, Larsen & Toubro Infotech Limited and Wipro Limited. In this regard, the Ld. AR submitted that exclusion of all these comparables is covered by the decision of this Tribunal for the same assessment year in the case of HighRadius Technologies Private Limited Vs. DCIT in ITA No.436/Hyd/2024 for Assessment Year 2021-22 dated 12.11.2025. The Ld. AR further submitted that exclusion of Nihilent Technologies Limited, Tata Elxsi Limited, Infosys Limited and Wipro Limited is also squarely covered by the decision of this Tribunal in assessee’s own case in IT(TP)A No.73/Hyd/2022 for Assessment Year 2017-18 vide order dated 16.07.2025. The Ld. AR also submitted that the agreement entered into by the assessee with its Associated Enterprises (“AEs”) and the business model of the assessee during the year under consideration are identical to those in Assessment Year 2017- 18. Therefore, according to the Ld. AR, the decision of this Tribunal in assessee’s own case for Assessment Year 2017-18 would squarely apply to the year under consideration. Accordingly, the Ld. AR prayed before the Bench to exclude Nihilent Technologies Limited, Tata Elxsi Limited, Cybage Software Private Limited, Infosys Limited, Larsen & Toubro Infotech Limited and Wipro Limited from the final set of comparables. 7. Per contra, the Learned Departmental Representative (“Ld. DR”) relied upon the orders of the Ld. AO/ TPO. With regard to the claim of the assessee for exclusion of high turnover companies, the Ld. DR invited our attention to Rule 10CA of the Income Tax Rules, 1962 (“the Rules”) and submitted that while computing Arm’s Length Price, the data

falling within 35th percentile to 65th percentile is considered in accordance with the prescribed Rules and therefore the impact of companies having high turnover gets neutralized in the process of determination of Arm’s Length Price. Accordingly, the Ld. DR submitted that no separate exclusion of comparables on the basis of high turnover is warranted and therefore the contention of the assessee deserves to be rejected. 8. We have heard the submissions of the Ld. AR and the Ld. DR and perused the material available on record including the judicial precedents relied upon before us. At the outset, since the assessee has not pressed Ground Nos.1, 5, 7, 8, 10, 11 and 12, the same are dismissed as not pressed. 9. As far as the argument of the Ld. DR that the working mechanism provided under Rule 10CA neutralizes the impact of selection of high turnover comparables is concerned, we are unable to accept the same. Rule 10CA merely provides a mechanism for determination of Arm’s Length Price based upon arithmetic computation and percentile range of profit margins. The said Rule cannot be interpreted to mean that functional dissimilarities or impact arising on account of exceptionally high turnover companies automatically stands neutralized merely because the comparables fall within the prescribed percentile range. Therefore, in our considered opinion, the contention of the Revenue on this issue is devoid of merit. 10. As regards exclusion of Nihilent Technologies Limited, Tata Elxsi Limited, Infosys Limited and Wipro Limited, we have gone through the relevant portion of the order of this Tribunal in assessee’s own case in IT(TP)A No.73/Hyd/2022 for

Assessment Year 2017-18 dated 16.07.2025, which is to the following effect: Tata Elxsi Limited and Infosys Limited :

Wipro Limited :

Nihilent Technologies Limited :

Tata Elxsi Limited:

Infosys Limited:

Wipro Limited:

Nihilent Technologies Limited:

Cybage Software Private Limited:

laws relied upon. We have gone through the para nos. 57 to 64 of the order of this Tribunal in the case of HighRadius Technologies Private Limited Vs. DCIT (supra) for the same Assessment Year, which is to the following effect:

submitted that the Ld. TPO denied WCA on the ground that only year-end figures were available and the assessee failed to furnish detailed working capital cycle data during the year. The Ld. AR also submitted that the assessee is not in a position to obtain granular or daily/monthly working capital data of the uncontrolled comparable companies, as such data is not available in the public domain, and the assessee has no access or right to call for such internal details from third-party comparables. In terms of Rule 10B(1)(e)(iii) of the Income- tax Rules, 1962, the net profit margin arising in comparable uncontrolled transactions should be adjusted to take into account the differences, if any, between the international transaction and comparable uncontrolled transactions which could materially affect the amount of net profit margin. In our view, difference in levels of working capital between the tested party and the comparables have an affects on the margins and profitability. Therefore, the Ld. TPO’s approach in insisting upon daily/monthly working capital cycle data of third-party comparables is, in our considered view, unjustified, particularly when such data is admittedly not available in the public domain. The assessee cannot be expected to obtain information which is beyond its reach. Therefore, we are of the considered opinion that, WCA cannot be denied merely due to the absence of detailed working capital cycle data and the adjustment should be granted based on average of opening and closing balances. Hence, we direct the Ld. TPO to grant appropriate WCA to the assessee while determining the ALP, by adopting the average of opening and closing working capital balances of comparables, as available from their annual reports. Accordingly, the ground No. 8 of the assessee is allowed for statistical purpose.”

by the learned TPO. The Ld. AR further submitted that the assessee should be allowed a credit period of 60 days instead of 30 days adopted by the learned TPO. 27. Per contra, the Ld. DR relied upon the order of the learned TPO. 28. We have considered the rival submissions and gone through the material available on record. As regards the primary contention of the assessee that once working capital adjustment is granted, no separate adjustment on account of interest on trade receivables is required, provided the margin of the assessee after such adjustment is higher than the arm’s length margin of the comparables, we have gone through para nos. 7 to 12 of the judgment of the Hon’ble Delhi High Court in the case of Kusum Healthcare Pvt. Ltd. Vs. ACIT reported in 62 taxmann.com 79 dated 31.03.2015, which is to the following effect:

DCIT in ITA No. 1041/Hyd/2024 dated 06/03/2025, wherein at para nos. 6 to 10 of the order this Tribunal has held as under :

“6. It is pertinent to note that, not following the decisions of the Tribunal in assessee’s own case amounts to judicial indiscipline on the part of the DRP. However, since the issue has now come up before the Tribunal, therefore, we will discuss the merits of this issue. The basic question before us is, whether for benchmarking the outstanding receivables from AEs, the comparable interest rate should be PLR rate/SBI short term rate or LIBOR rate/LIBOR+ mark up. This issue was considered by the Chennai Special Bench of this Tribunal in case of Shiva Industries & Holdings Ltd. v. Assistant Commissioner of Income- tax reported in 46 SOT 112/11 Taxmann.com 404 (SB) and held in para 11 as under: “11. We have considered the rival submissions. A perusal of the order of the TPO clearly shows that the assessee had raised the funds by way of issuance of 0 per cent optional convertible preferential shares. Thus, it is noticed that the funds raised by the assessee company for giving the loan to India Telecom Holdings Ltd., Mauritius, which is its Associated Enterprises and which is the subsidiary company, is out of the funds of the assessee company. It is not borrowed funds. The assessee has given the loan to the Associated Enterprises in US dollars. The assessee is also receiving interest from the Associated Enterprises in Indian rupees. Once the transaction between the assessee and the Associated Enterprises is in foreign currency and the transaction is an international transaction, then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. If this is so, then the domestic prime lending rate would have no applicability and the international rate fixed being LIBOR would come into play. In the circumstances, we are of the view that it LIBOR rate which has to be considered while determining the arm's length interest rate in respect of the transaction between the assessee and the Associated Enterprises. As it is noticed that the average of the LIBOR rate for 1-4-2005 to 31-3-2006 is 4.42 per cent and the assessee has charged interest at 6 per cent which is higher than the LIBOR rate, we are of the view that no addition on this count is liable to be made in the hands of the assessee. In the circumstances, the addition as made by the Assessing Officer on this count is deleted.” 7. Thus, a transaction of loan to the AEs in foreign currency is considered as international transaction between the assessee and its AEs, then the transaction would have to be looked upon by applying the commercial principles in regard to the international transactions. Therefore, the domestic prime lending rate or domestic deposit rate would have no applicability on international transaction, but the international rate being London Interbank Offered Rate (LIBOR) or similar rate i.e. Euro Interbank Offered Rate (EURIBOR) would govern the international

transactions of lending by the assessee to the AEs. This issue also came up for consideration before the Hon'ble Delhi High Court in the case of CIT vs. Cotton Naturals (I) Private Ltd, reported in 276 CTR 445 (Del.) and the Hon'ble Delhi High Court has held in para 35 to 40 as under: “35. The LIBOR rate plus markup or the interest rate prevailing in the United States at that time, i.e. 2003 have not been examined and are not the basis on which the TPO made the adjustment and compute the interest rate for the transaction under consideration. It claimed that the LIBOR rates in the year 2002 varied between 1.447 % to 3.006 % and in the year 2003 between 1.201% to 1.487%. Rates in the year 2004 were again marginal, with the highest at 3.100% and the lowest at 1.340%. The LIBOR rate of 5.224% quoted in the TPO's order, it is pointed out, was the rate received on the investment made during the assessment year in question by the assessed. Thus, it was argued that the present case is of a long-term loan granted to the AE and the rate of interest charged was much higher than the then prevailing LIBOR interest rate. There is no finding of the TPO, the DRP or the Assessing Officer questioning the long-term transaction as such. 36. Under sub-rule (4) to Rule 10B, the data used for comparability of the uncontrolled transaction should be the data relating to the financial year in which the international transaction has been entered into. The proviso permits consideration of data, not more than two years prior to the financial year, if such data reveals facts which would have influenced determination of transfer price in relation to the transaction being compared. The transaction in question was entered into in the year 2002-03 when the loans were granted to the AE. This was the financial year of the international transaction. Payment of interest is also an international transaction but would have reference to the year in which the loan was granted in case of a long term loan. However, in such situations, question may arise whether the case would fall under the second exception mentioned in the case of E.K.L. Appliances (supra), when an AE has the right to recall and ask for repayment of loan. These aspects have not been considered and applied by the TPO, DRP and the Assessing Officer. Neither has this ground been argued before us on behalf the Revenue. We, therefore, would not proceed to examine the said aspect and leave the question open. Similarly, we have not expressed any opinion on the issue or question of "thin capitalization" which does not arise for consideration in the present case. 37. We observe that whatever the Revenue argues and submits in the case of outbound loans or for that matter what we have observed would be equally applicable to inbound loans given to Indian subsidiaries of foreign AEs. The parameters cannot be different for outbound and inbound loans. A similar reasoning applies to both inbound and outbound loans. Revenue has erroneously argued that different parameters would apply for inbound and outbound loans, which is not acceptable.

more powerful party. But, exactly where there is no 'special relationship', this will frequently not be possible in dealings with such party. Consequently, it will normally not be possible to review and adjust the interest rate to the extent that such rate depends on the currency involved. Moreover, it is questionable whether such an adjustment could be based on Art. 11 (6). For Art. 11(6), at least its wording, allows the authorities to 'eliminate hypothetically' the special relationships only in regard to the level of interest rates and not in regard to other circumstances, such as the choice of currency. If such other circumstances were to be included in the review, there would be doubts as to where the line should be drawn, i.e., whether an examination should be allowed of the question of whether in the absence of a special relationship (i.e., financial power, strong position in the market, etc., of the foreign corporate group member) the borrowing company might not have completely refrained from making investment for which it borrowed the money." 40. The aforesaid methodology recommended by Klaus Vogel appeals to us and appears to be the reasonable and proper parameter to decide upon the question of applicability of interest rate. The loan in question was given in foreign currency i.e. US $ and was also to be repaid in the same currency i.e. US $. Interest rate applicable to loans granted and to be returned in Indian Rupees would not be the relevant comparable. Even in India, interest rates on FCNR accounts maintained in foreign currency are different and dependent upon the currency in question. They are not dependent upon the PLR rate, which is applicable to loans in Indian Rupee. The PLR rate, therefore, would not be applicable and should not be applied for determining the interest rate in the extant case. PLR rates are not applicable to loans to be re-paid in foreign currency. The interest rates vary and are thus dependent on the foreign currency in which the repayment is to be made. The same principle should apply.”

decision of the Tribunal directing the Assessing Officer to benchmark the interest at the prevailing EURIBOR rate instead of rupee loan rate to be computed at Arms’ Length on the loan advanced to the AE. The relevant findings of the Hon'ble High Court in para 7 & 8 are as under: “7. We find that the impugned order of the Tribunal inter alia has followed the decisions of the Bombay Bench of the Tribunal in cases of VVF Ltd. v. Dy. CIT [IT Appeal No. 673 (Mum.) of 2006] and Dy. CIT v. Tech Mahindra Ltd. [2011] 12 taxmann.com 132/46 SOT 141 (Mum.) (URO) to reach the conclusion that ALP in the case of loans advanced to Associate Enterprises would be determined on the basis of rate of interest being charged in the country where the loan is received/consumed. Mr. Suresh Kumar the learned counsel for the revenue informed us that the Revenue has not preferred any appeal against the decision of the Tribunal in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra) on the above issue. No reason has been shown to us as to why the Revenue seeks to take a different view in respect of the impugned order from that taken in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra). The Revenue not having filed any appeal, has in fact accepted the decision of the Tribunal in VVF Ltd. (supra) and Tech Mahindra Ltd. (supra). 8. In view of the above we see no reason to entertain the present appeal as in similar matters the Revenue has accepted the view of the Tribunal which has been relied upon by the impugned order. Accordingly, we see no reason to entertain the proposed questions of law.”

Germany. As such, we are confining ourselves only to international transaction of receipt of interest from Mascot GmbH, Germany. As against the assessee charging interest at the rate of 1.50% from Mascot GmbH, Germany, the TPO determined the arm's length rate of interest at 14%, which the ld. CIT(A) reduced to 4.42% by treating it as the average EURIBOR rate for the year under consideration. 5. There are two facets of the dispute raised by the Revenue on this issue. The first is that the rate of interest should be considered with reference to the prime lending rate prevalent in India and the second is that the reduction in rate to 4.42% by the ld. CIT(A) is not justified. 6. As against the TPO's point of view that since the assessee in India advanced loan to its AE in Germany, which if not given, would have fetched interest @14% in India, the ld. CIT(A) has held that interest rate prevalent in the country in which the loan is received, should be considered for determining the ALP of transaction of interest received. We find that there is almost judicial consensus ad idem at the higher appellate forums on the question of which country, that is the borrower or the lender, should be considered for determining the arm's length rate of interest on loans advanced to the AEs. The Hon'ble Bombay High Court in CIT v.Tata Autocomp Systems Ltd . [2015] 56 taxmann.com 206/230 Taxman 649/374 ITR 516 has held that the ALP in case of loan advanced to AEs should be determined on the basis of rate of interest charged in the country where loan is received. The Hon'ble Delhi High Court in CIT v. Cotton Naturals (I) (P.) Ltd. [2015] 55 taxmann.com 523/231 Taxman 401 has also held that the currency in which the loan is to be repaid normally determines the rate of return on the money lent, i.e. rate of interest. The Hon'ble Bombay High Court in CIT v. The Great Eastern Shipping Co. Ltd. [2018] 301 CTR 642 has reiterated that the arm's length rate of interest is to be considered with reference to the country in which the loan is received and not from where it is paid. In view of these precedents, it is palpable that the viewpoint of the AO in considering the rate of interest prevalent in India, being, the lender country, as determinative of the ALP of rate of interest charged by the assessee, is not correct. To this extent, we uphold, in principle, the view canvassed by the ld. CIT(A) that the rate of interest prevalent in Germany, being, the country in which the loan was consumed, is determinative of the arm's length rate of interest charged by the assessee- lender. 7. Now we espouse the second facet of the dispute relating to the determination of the arm's length rate of interest. It is seen that the ld. CIT(A) has held that average EURIBOR for the A.Y. 2007-08 should be considered as a benchmark. In determining the average EURIBOR at 4.42%, he relied on an order passed by the Tribunal in which the average LIBOR was considered at 4.42%. In other words, the ld. CIT(A) considered EURIBOR as a comparable uncontrolled transaction for the purpose of benchmarking the rate of interest charged by the assessee. 8. At this juncture, we consider it expedient to clarify that EURIBOR (Euro Inter-bank Offered Rate) is not a rate of

interest, in itself, at which loans are advanced by banks in Euros to borrowers. EURIBOR is a reference rate which is calculated from the average interest rate at which Euro Zone Banks offer lending on inter-bank market. While calculating EURIBOR, 15% of the lowest and 15% of the highest interest rates collected by a panel of European banks are eliminated and the remaining 70% form the basis for its calculation. In such circumstances, EURIBOR, being, not an average rate at which the loans are advanced by European banks to borrowers, cannot per se be characterized as a comparable uncontrolled rate of interest at which loans are advanced in Germany. 9. On lines of EURIBOR, there is LIBOR (London Inter-bank Offered Rate), another rate which is applied on behalf of British Bankers Association. Similar to EURIBOR, LIBOR is also a rate at which major global banks lend to one another in the international inter-bank market on short-term basis. In calculation of LIBOR, 25% of lowest and 25% of the highest values are eliminated and the remaining 50% are considered for determining LIBOR. Therefore, LIBOR, as such, can also not be construed as a comparable uncontrolled transaction. The Hon'ble Bombay High Court in CIT v. Aurionpro Solutions Ltd. [2017] 99 CCH 70 approved the action of the Tribunal in considering LIBOR +2% as the arm's length rate as against the TPO applying LIBOR plus 3%. Drawing an analogy from this position, we hold that EURIBOR+2% should be considered as arm's length rate of interest for determining the ALP of the international transaction of interest received by the assessee from Mascot Systems GmbH, Germany. 10. Before parting with this issue, we would like to clarify that the ld. CIT(A) has considered 4.42% as EURIBOR applicable for the assessment year under consideration by relying on an order of the Tribunal, in which the average LIBOR was considered at this level. Equality of LIBOR and EURIBOR could not be substantiated from any material on record. In the given circumstances, we set aside the impugned order and remit the matter to the file of the AO for considering EURIBOR +2% as arm's length rate of interest to be applied on loan advanced by the assessee to Mascot Systems GmbH, Germany. In case EURIBOR +2% turns out to be lower than 4.42% as directed to be applied by the ld. CIT(A) on the understanding of the same being EURIBOR simplicitor, then the addition should be restricted with reference to 4.42% rate of interest, as the assessee is not in appeal on this issue. In the otherwise scenario, the relief allowed by the ld. CIT(A) will be restricted pro tanto.”

VADREVU Digitally signed by VADREVU PRASADA PRASADA RAO Date: 2026.05.29 RAO 14:02:02 +05'30'