INCOME TAX OFFICER, CHENNAI vs. ENCORE IT SERVICES SOLUTIONS PRIVATE LIMITED, CHENNAI

ITA 2631/CHNY/2025Status: DisposedITAT Chennai06 May 2026AY 2021-229 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision to exclude 'Orchasp Ltd.' and 'Data Collection Infotech (India) Pvt. Ltd.' due to functional dissimilarity and lack of segmental information. The exclusion of 'Great Software Laboratory Pvt. Ltd.' was also confirmed based on similar grounds and higher turnover.

What were the facts?

The Revenue appealed the CIT(A)'s order which partly allowed the assessee's grounds for exclusion of comparables in transfer pricing. The assessee, a captive service provider, sought exclusion of certain companies from the comparable list used by the TPO.

What were the issues?

Whether companies with diversified activities, lack of segmental information, and higher turnover should be excluded as comparables in transfer pricing analysis.

Which sections of the Income-tax Act were involved?

Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI

Before: SHRI ABY T. VARKEY & MS. PADMAVATHY.S

Hearing: 30.04.2026Pronounced: 06.05.2026

आदेश / O R D E R

PER PADMAVATHY.S, A.M: This appeal by the Revenue is against the order of the Commissioner of Income Tax (Appeals), Chennai-16 (in short "CIT(A)") passed u/s. 250 of the Income Tax Act, 1961 (in short "the Act") dated 18.07.2025 for Assessment Year (AY) 2021-22. The grounds of appeal raised by the Revenue are as under: “1. Whether on the facts on the facts and circumstances of the case, the Ld.CIT(A) is correct in directing the TPO to adopt the upper turnover filter of INR 200 crores ignoring that the TPO has already applied the upper turnover of filter of 23 times.

ITA No.2631/Chny/2025 Encore IT Services Solutions Pvt. Ltd. :- 2 -: 2. Whether on the facts and circumstances of the case, the Ld.CIT(A) is correct in directing the TPO to exclude the comparable M/s. Great Software Laboratory Pvt. Ltd as it is having turnover of more than 200 crores. 3. Whether on the facts and circumstances of the case, the Ld.CIT(A) is correct in directing the TPO to exclude the comparables M/s. Orchasp Ltd., M/s. Data Collection Infotech (India) Pvt. Ltd. reason being functionally dissimilar wherein the method adopted is TNMM under which broadly comparable companies can be considered for comparison. 4. Whether on the facts and circumstances of the case, the Ld.CIT(A) is correct in directing the TPO to exclude the comparables M/s. Orchasp Ltd., M/s. Data Collection Infotech (India) Pvt. Ltd. reason being functionally dissimilar whereas the annual reports of these companies indicate they are into provision of software services.”

The assessee is a private limited company and is part of Encore Software Services INC Group, USA. The assessee is engaged in the business of rendering software services to the clients of Encore, US which in turn contracts with the end customers in USA. The assessee works under the overall supervisions and guidance of Encore, US which is responsible for identifying and procuring projects from the end customers. The assessee being the delivery centre operates as a limited risk bearing service provider. The assessee filed a return of income for AY 2021-22 declaring total income of Rs.2,08,17,852/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. Since the assessee had international transactions, the A.O made a reference to the Transfer Pricing Officer (TPO) to complete the Arm's Length Price (ALP) of the international transactions. The assessee in the TP study has benchmarked the international transaction of provision of software services using CPM as Most Appropriate Method (MAM). The assessee has chosen the following 10 comparables:

ITA No.2631/Chny/2025 Encore IT Services Solutions Pvt. Ltd. :- 3 -:

The assessee computed its PLI using operating profit by / operating cost (OP/OC) as below:

Since the PLI of the assessee @ 4.69% is more than that of the comparables, the assessee in the TPSR concluded that the international transaction of provision of software is with Arm's Length. The TPO rejected the TP study and conducted an independent search to select the following final list of comparable:

ITA No.2631/Chny/2025 Encore IT Services Solutions Pvt. Ltd.

:- 4 -:

ITA No.2631/Chny/2025 Encore IT Services Solutions Pvt. Ltd. :- 5 -: 5. Accordingly, the TPO arrived at the TP adjustment as under:

Since the assessee opted for further appeal before the CIT(A), the A.O passed the final assessment order incorporating the TP adjustment. Before the CIT(A) the assessee raised grounds seeking exclusions of nine comparables which was partly allowed by the CIT(A). The CIT(A) also partly allowed the contentions of the assessee with regard to incorrect margins considered by the TPO with regard to four of the comparables. Accordingly, the CIT(A) partly

ITA No.2631/Chny/2025 Encore IT Services Solutions Pvt. Ltd. :- 6 -: allowed the grounds raised by the assessee. The Revenue is an appeal before the Tribunal against the order of the CIT(A) contending the exclusion of 3 comparables allowed by the CIT(A).

Exclusion of Orchasp Ltd (Orchasp). 7. The ld AR submitted that Orchasp is engaged in both sale of software products and services and no segmental details are available. The ld AR further submitted that Orchasp is functionally dissimilar to the assessee as it is involved in diversified activities including both sale of software and services. The ld AR also submitted that Orchasp recognises only a single segment in its books of accounts and bifurcation of revenue from software services vs other streams is not available. Accordingly the ld AR prayed for exclusion of the same.

We heard the parties and perused the material on record. From the perusal of the annual report of the Orchasp we notice that Orchasp Ltd. is an information technology company engaged in computer programming, consultancy, and related IT services. Firther its operations include custom software development, system integration services, network and surveillance solutions, cloud-based solutions, business process services, and related technology services. We also notice that the company serves multiple sectors such as healthcare, telecommunications, manufacturing, engineering, energy, and retail, and offers application development, automation services, cyber security, IoT and AI-based solutions. From the annual report it is noticed that the revenue of the company is generated from compiling and selling software products and also from providing domain specific software services. It is further noticed that there is no segmental information with regard to the

ITA No.2631/Chny/2025 Encore IT Services Solutions Pvt. Ltd. :- 7 -: revenue from sale of products and rendering software services. It is also relevant to notice that the company is serving third party customers bearing the risk directly whereas the assessee is a captive service provider where the risk is majorly born by the AE. In view of these discussions we hold there is no infirmity in the decision of the CIT(A) in excluding Orchasp since the company is functionally dismissilar to that of the assessee who is captive service provided and that there is no segmental information available with regard to sale of software products and services.

Exclusion of Data Collection Infotech (India) Pvt. Ltd 9. We heard the parties and perused the material on record. The main argument of the ld AR is that the company is a KPO service provider as it is involved in high end geospatial and engineering knowledge processing services which is functionally different from the assessee who is providing captive software services to its AE. We in this regard notice that as per the annual report of the company it is stated that the company is engaged in software development and information technology enabled services whereas no segmental details are available. The assessee in the present case is engaged in provision of software support services and therefore we see no reason to interfere with the decision of CIT(A) who has excluded the comparable on the ground of functional dissimilarity and non-availability of segmental information.

Exclusion of Great Software Laboratory Pvt. Ltd 10. We heard the parties and perused the material on record. It is submitted that is involved in diversified activities including high end KPO operations and sale of products (packaged software). Based on perusal of the Annual Report, the company’s operations include design and development of

ITA No.2631/Chny/2025 Encore IT Services Solutions Pvt. Ltd. :- 8 -: software applications including customized and packaged software. Further, the software development services include expertise into cloud applications, communication, identity management and system technologies. We notice from the perusal of the annual report that Great Software is primarily engaged in digital product engineering in the areas of Communications, 5G, Networking, Multi-Cloud Management, user experience, IoT and data science and that the Company also operates in product and performance engineering, applications management services, and user experience design which are high-end in nature. We further notice that Great Software earns revenues from software development services as well as sale of software products but no segmental information is available. We also notice that Great Software was excluded as comparable in assessee's own case for AY 2016-17 (ITA No. 630/Chny/2023 dated 11.07.2024) on the ground of higher turnover. In view of these discussions we see no infirmity in the decision of the CIT(A) to exclude Great Software on the ground that it is engaged in KPO services and sale of products, has insufficient segmental information and exceptionally high turnover.

11.

In the result, the appeal of the revenue is dismissed.

Order pronounced on 06th day of May, 2026 at Chennai.

Sd/- Sd/- (एबी टी. वक�) (पदमावती यस) (ABY. T. Varkey) (Padmavathy.S) लेखा लेखा सद�य लेखा लेखा सद�य सद�य /Accountant Member सद�य �याियक �याियक सद�य �याियक �याियक सद�य सद�य / Judicial Member सद�य चे�नई/Chennai, �दनांक/Dated: 06th May, 2026. EDN, Sr. P.S

ITA No.2631/Chny/2025 Encore IT Services Solutions Pvt. Ltd. :- 9 -:

आदेश क� �ितिल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकर आयु�/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय �ितिनिध/DR 5. गाड� फाईल/GF

EJTADA Digitally signed by EJTADA DURGA NARESH DURGA Date: 2026.05.13 NARESH 10:32:32 +05'30'

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