ALEPO TECHNOLOGIES PRIVATE LIMITED,MUMBAI, MAHARASHTRA vs. THE DEPUTY COMMISSIONER OF INCOME TAX, MUMBAI, MAHARASHTRA

PER PAWAN SINGH, JUDICIAL MEMBER;

order dated 11.11.2025, passed in pursuance of direction of Dispute

Resolution Penal (DRP)-1, Mumbai dated 09.10.2025 for A.Y. 2022-23. The

assessee has raised following grounds of appeal:

“Ground No. 1 On the facts and in the circumstances of the case and in law, the final assessment order passed by the Ld. AO under section 143(3) read with section 144C(13) read with section 144B of the Act, having been passed beyond limitation provided in terms of section 153 of the Act, is illegal, being barred by limitation, bad in law and therefore liable to be quashed.

Prayer The Appellant prays that the final assessment order is bad in law and ought to be quashed.

Transfer Pricing Grounds Ground No. 2 On the facts and in the circumstances of the case, and in law, the Ld. TPO/Ld. AO/ Ld. DRP have erred in rejecting the economic analysis conducted by the Appellant ita transfer pricing (TP) study report and consequently, making a transfer pricing (TP) adjustment of INK 3,88,86,498 to the income of the Appellant on the ground that the international transaction of provision of IT support services is not at arm's length.

Prayer The Assessee prays that the book value of the aforesaid international transaction be accepted to be the arm's length price and accordingly, the TP adjustment ought to be deleted.

Ground No. 3 On the facts and in the circumstances of the case and in law, the 14. TPO/LA. AO/Ld. DRF have erred in disregarding the fact that none of the conditions, as set out in Section 92C(3) of the Act are satisfied and hence, there was no requirement to re-determine arm's length price by the Ld. TPO.

Prayer The Appellant prays that the TP analysis conducted by the Appellant be accepted and consequently the TF adjustment ought to be deleted

Ground No. 4 On the facts and in the circumstances of the case and in law, the Ld. TPO/Ld. AD/Ld. DRP have erred in making a TP adjustment of INR 3,88,86,498 to the income of the Appellant on the ground that the international transaction of provision of IT support services is not at arm's length. While doing so, the L4. TPO/LE AO/LA. DRP have erred in:

Arbitrarily modifying the existing filters and applying certain additional filters.

Not appreciating the turnover filter applied by the Appellant in its TP study report of rejecting the comparables with turnover of less than INR 1 Crore and erred in applying a filter of 1/10 to 10 times of the Appellant's turnover, thereby, rejecting the companies which were otherwise functionally comparable to the business of the Appellant.

Rejecting companies which are functionally comparable to the business operations of the Appellant without conducting a structured search process leading to cherry picking approach.

Prayer The Appellant prays that the benchmarking analysis conducted by the Appellant be accepted and the adjustment be deleted.

Ground No. 5 On the facts and in the circumstances of the case, and in law, the Ld. AO/Ld. TPO/Ld. DRP have erred in rejecting Rheal Software Ltd. on account of losses in two out of three years under consideration without providing any comments/ observation on the Appellant's contention on exclusion of Rheal Software Ltd. considering that it is not a persistent loss maker.

Prayer The Appellant prays that the Rheal Software Ltd is not a persistent loss maker and passes all the arbitrary filters applied by the Ld. TPO/Ld. AO/Ld. DRP and ought to be included in the final set.

Ground No. 6 On the facts and in the circumstances of the case, and in law, the Lad. AO/Ld. TPO/ Ld. DRP have erred in rejecting the fresh benchmarking analysis conducted by the Appellant, on a without prejudice basis.

Prayer The Appellant prays that the fresh benchmarking analysis conducted by the Appellant ought to be accepted in case the arbitrary filters applied by the Ld. AO/Ld. TPO/Ld. DRF are accepted.

Ground No. 7 On the facts and in the circumstances of the case, the Ld. AO/ Lad. DRP has erred in not allowing the economic adjustment on account of differences in functional and risk profile of the Appellant and that of the comparable companies while determining the arm's length price of the international transaction of Provision of IT support services.

Prayer The Appellant prays that the economic adjustment for difference in functional and risk profile should be allowed.

Corporate Tax Grounds

Ground No. 8 On the facts and in the circumstances of the case, the Ld. AO/ Ld. DRP have erred in treating unearned revenue of INR 5,39,84,069 as sales revenue for the year under consideration and holding the said receipts as unexplained cash credits as per section 68 of the Act.

While doing so the Ld. AO/Ld. DRP failed to appreciate that the unearned revenue is an amount received in advance and is classified as a liability in accordance with Accounting Standard (AS) 9 Revenue Recognition and is accounted for as revenue only upon rendering of services to customers and accordingly, not taxable for the year under consideration.

Prayer The Appellant submits that such addition of unexplained cash credit under section 68 of the Act is unwarranted and prays before the Hon'ble ITAT to delete the addition

Ground No. 9 Without prejudice to the above ground, the Ld. AO and the Ld. DRP have further erred, both in law and on facts, in not allowing the deduction of expenses incurred in connection with the unearned revenue recognized as income during the year under consideration. In the event any addition is made on account of such unearned revenue, the corresponding expenses incurred for earning such revenue ought to be allowed as a deduction in computing the taxable income, in accordance with the principles of income computation under the Act. The failure to grant such deduction is unjustified and contrary to the settled principles of law,

Prayer The Appellant respectfully prays before the Hon'ble ITAT to allow the deduction of expenses incurred in connection with the said revenue, and grant such other relief as deemed fit.

Ground No. 10 On the facts and circumstances of the case, the Ld. AO/ Ld. DRP bas erred in adding back the foreign currency fluctuation loss of INR 91,68,000, by erroneously treating it as understatement of revenue.

Prayer The Appellant submits that such addition is unwarranted and prays before the Hon'ble ITAT to delete the addition

Ground No. 11 On the facts and circumstances of the case and in law, the Ld. AO erred in levying the interest and fee of INR 2,12.05.086 while computing the impugned tax demand.

Prayer The Appellant prays before the Hon'ble ITAT that the interest is consequential to the additions made by the Ld. AO and ought to be deleted.

Ground No. 12 On the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under section 271AAC(1) of the Act in connection with the tax determined under section 115BBE of the Act on the addition made towards unexplained cash credit under section 68 of the Act

Prayer The Appellant prays that there is no unexplained cash credit under section 68 of the Act and consequently, prays before the Hon'ble ITAT for direction to the Ld. AO to drop the initiation of penalty proceedings under section 271AAC(1) of the Act.

Ground No. 13 On the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under section 270A of the Act for underreporting of income as a consequence of misreporting of income.

Prayer The Appellant prays before the Hon'ble ITAT to direct the Ld. AO to drop the penalty proceedings under section 270A of the Act.

The above grounds are independent of and without prejudice to each other. The Appellant craves leave to add, alter, amend, or withdraw all or any of the Grounds of Appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.”

subsidiary of Alepo Technologies Inc. the assessee is providing Information

Technological (IT) support services to the Alepo group in India. The assessee

filed its return of income for A.Y. 2022-23 on 25.11.2022 declaring total

income of Rs, 1.28 Crore. The assessee while filing return of income reported

certain international transaction with its associated enterprises (AE).

Consequent upon, the assessing officer (AO) made a reference to transfer

pricing officer (TPO) for computation of arm’s length price in respect of

international transaction. Before TPO, the assessee contended that assesses

operating profit (OP)/ total cost (TC) was at 13.82%. T and benchmarked its

transaction by adopting Transactional Net Margin Method (TNMM) and

selected nine (9) following comparables which had range of 3.88% to 21.64%. Since, the he assessee operating margin of 13.82% fell within the

range, the assessee claimed its transaction at Arm’s Length.

Sr No. Name of comparable company Weighted average of operating profit on operating cost. 1 Web Element Solution Ltd. -1.97 2 Rheal Software Pvt. Ltd. -1.89 3 Infomile Technologies Ltd. 4.5 4 Yudiz Solution Ltd. 8.21 5 Sagarsoft (India) Ltd. 14.57 6 R Systems International Ltd. 20.86 7 Sasken Technologies Ltd. 33.72 8 C G V A K Software & Exports Ltd. 37.9 9 Tata Elxsi Ltd. 39.17 Data Arm’s Length Range OP/OC% Place 35th Percentile 8.21 Median 14.57 65th Percentile 14.57%

companies and retained four (4) companies in the final set of comparables

and issued show cause notice to the assessee as to why ALP @ 23.60%

against the PLI of assessee at 13.82%. The assessee contested for rejection

of all five comparable. However, the TPO rejected the submissions of assessee

and suggestedupward adjustment of Rs. 3.88 crore vide its order dated

20.01.2025.

1 Yazid Solutions Private Limited 8.21 2 Sagar soft (India) Limited 14.57 3 Sasken Technologies Limited 33.72 4 C G-V A K Software & Export Limited 37.72 5 Average of ALP 23.6 4. On receipt of report of TPO, the AO passed the draft assessment order dated

10.03.2025. Copy of draft assessment was served upon the assessee. The

assessee filed its objection before Dispute Resolution Penal (DRP), wherein

the action of AO/ TPO was sustained. Accordingly, the AO passed final assessment order under section 143(3) r.w.s. 144C (13) on 11.11.2025.

Further, aggrieved the assessee has filed appeal before Tribunal.

through the orders of lower authorities carefully. The learned authorised

representative (ld. AR) of the assessee submits that he is making submissions

for inclusion of only two comparable that is Rheal Software (P) Limited

(Alepo) and Toxsl Technologies Private Limited (ToxsL). If these two

comparable companies are retained in final set of comparable, the assessee

will be satisfied.

of the assessee submits that TPO excluded Rheal from final set of

comparable holding that it is persistent loss making company. It

incurred losses in two assessment years out of last three

assessment years. The DRP upheld the action of TPO. The ld. AR of

the assessee submits that the TPO has not disputed functional

similarity between the assessee’s business and with Rheal. It is an

undisputed fact that Rheal has earned operating profit in one of the

last three years and has a positive profit before taxes in two or last

three years. It is settled position in law that holding a comparable

company a persistently loss maker, it has to make losses in three

consecutive assessment years which is clearly missing in this case.

The ld. AR provided year on year operating margins of Rheal in the

following manner:

Particulars FY 2018-19 FY-2019- FY 2020- FY 2021-22 FY 2022- 20 21 23 Sales 5.91 4.57 5.59 4.49 5.09 Profit (loss) 0.23 0.27 7.75 1.26 16.79 before taxes for the period Operating Profit 0.13 0.22 0.09 0.15 0.10 7. On the basis of aforesaid figures, the ld. AR of the assessee submits

that co-ordinate bench of Tribunal in various other cases has

categorically held that Rheal is not persistent loss maker. To support

his submission, he relied upon the following decision:  Genesys Telecom Labs India Pvt. Ltd. vs DCIT – IT(TP) No. 38/Chny/2024 (Chen – Trib.)  Nokia Solutions and Networks India (P) Ltd. vs ACIT (2024) 160 taxmann.com 729 (Delhi – Trib.) 8. For inclusion of Toxsl Technologies Private Ltd. (Toxsl), the ld. AR of

the assessee submits that after rejecting five comparable

companies from final set of comparable by TPO, the assessee

conducted a fresh benchmarking analysis by adopting the same

filters as applied by TPO. The assessee filed the same as additional

evidence before DRP wherein the assessee sought inclusion of Toxsl

Technology Pvt. Ltd. as comparable. On filing such additional

evidence, the DRP called remand report from TPO. The ld. AR

submits that Toxsl qualifies filter applied by TPO. It is in software

development services and functionally similar to the business of

assessee. The financial of assessee in the form of annual report is

available at page no. 1044 of paper book. The TPO rejected the

submission of assessee in his remand report. The DRP upheld the

action of TPO. The ld AR of the assessee submits that Toxsl is comparable as it is functionally similar with assessee also qualify all

filters applied by TPO. To support his submission, the ld. AR relied

upon the decision of Pune Tribunal in Faurecia Interior Systems

India (P) Ltd. vs ACIT (2018) 96 taxmann.com 579.

(ld. Sr. DR) for the Revenue strongly opposed the inclusion of Rheal

Software Ltd. and Toxsl Technologies Private Ltd. Against the

inclusion of Rheal Software Ltd., the ld. Sr. DR for the Revenue

submits that TPO and DRP has clearly brought out the fact on

record that this company incurred losses for two out of three years

and thus, failed in persistent loss filter. Further, as per the details

provided by assessee about functional profile of this company. This

company is in software license distribution, customer liaising,

Pricing, sales and marketing function and pricing of order, thus, the

function of assessee is not software development which is basically

code writing for software but IT support services. Rheal is in

software development and not comparable with the assessee.

Similarly, for Toxsl Technology, the ld. Sr. DR supported the order of

TPO and DRP.

have gone through the orders of lower authorities carefully. We find

that the parties have locked their horn on limited issue about the

inclusion of two comparables. We find that TPO rejected the

inclusion of Rheal on the ground that it is persistent loss making company. We find that coordinate bench of Mumbai Tribunal in

Nokia Solutions and Networks India (P) Ltd. vs ACIT (supra) held

that where TPO rejected a company selected for assessee on the

ground that it was having persistent losses in last three years upto

and including FY 2014-15, however, the assessee furnished

evidence to demonstrate that company has made profit in

subsequent financial year. The company was to be included in the

list of comparable. We find that inclusion of Rheal software was also

considered by co-ordinate bench in para 26 of order and held that in

AY 2015-16 it has reported profit, therefore, it does not specify the

persistent loss making company filter applied by TPO and cannot be

rejected and directed AO / TPO to include this company in final set

of comparable. Even from the details furnished before us, we find

that this company has shown profit in one of last three years. Thus,

following the same ratio, as has been held inNokia Solutions and

Networks India (P) Ltd. vs ACIT (supra),we hold that this company

cannot be treated as persistent loss making company hence AO /

TPO is directed to include this comparable in final set of comparable.

sought to include this comparable on the basis of filters applied by

TPO by way of additional evidence filed before DRP. We find that on

the application of additional evidence and inclusion of additional

comparable DRP sought remand report from TPO. In the remand

report dated 23.05.2025, the TPO objected about admissibility of additional evidence on the ground that sufficient opportunity was

allowed to the assessee and that the case of assessee does not fall

under any sub-clause of Rule-46A of Income Tax Rule. In is without

prejudice submission, the TPO stated that the assessee had carried

out fresh benchmarking by including four new comparables

companies. Such bench marking is carried out purposely by

including four new comparable, so that profit margin fit in (+/-) 3%

ranges. The new comparable are afterthought and picked up only to

bypass the transfer pricing provisions in the hand of assessee. The

comparable are functionally different. Thus, the TPO objected the

inclusion of Toxsl. On perusal annual report of Toxsl, we find that

this comparable is also into software development services and

functionally similar with the business of assessee. We find that Pune

Tribunal in Faurecia Interior Systems India (P) Ltd. vs ACIT (2018)

96 taxmann.com 579 (Pune-Trib.) also held that selection / rejection

of comparable is allowed even before appellate bodies, leave alone

before TPO / AO. Thus, when comparability is not in dispute as it

qualified for filter applied by TPO, the DRP ought to have included

this comparable. Hence, we directed the AO / TPO to include Toxsl

in final set of comparable. In the result, ground no. 2 to 7 of appeal

is allowed.

crore. The ld. AR of the assessee submits that AO made addition

under section 68 with respect to unearned Revenue appearing in the audited financial statement by holding that assessee has not proved

such receipt to be advance from customers. The ld. AR of the

assessee submits that provision of section 68 is not applicable on

the facts of present case. The assessee provided complete details

pertaining to unearned Revenue and same has been offered to tax

in subsequent years. Otherwise, during assessment proceedings,

the details of party including PAN, e-mail address and invoices and

ledgers of the parties. The assessee also proved creditworthiness of

parties. The advances were received from the customers across

multiple years. The assessing officer has not considered the ledgers,

invoices, work orders, journal entries furnished by assessee. The

assessing officer merely added closing balance shown in the ‘head

other current liabilities’ and erroneously holding that this amount is

unexplained. DRP also failed to appreciate the fact. The ld AR of the

assessee submits that once the transaction has been accepted in

the subsequent years, taxing the same in current assessment year

who led to double taxation. To support such submission, the ld. AR

relied upon the decision of Delhi High Court in PCIT vs vs Montage

Enterprises (P) Ltd. (2018) 100 taxmann.com 99 (Delhi) and the

decision of Surat Bench in ACIT vs Shah Virchand Govanji Jewellers

Pvt. Ltd. in ITA No. 175/Srt/2020.

of lower authorities. The impugned amount pertains to liability and

claimed to be the advances received for the worked to be done in future. On show cause by assessing officer the assessee failed to

substantiate with sufficient evidences. Once it is accepted that it

was an advance, but the assessee was required to maintain

complete record.

have gone through the orders of lower authorities carefully. We find

that AO made addition of Rs. 5.39 crore under section 68 by taking

view that assessee has shown unearned revenue of Rs. 5.39 crore.

On show cause, the assessee furnished details regarding advance

payment received from customers. The assessee also submits that

as per accounting standard – 9, such revenue cannot be recognised

since the services have not been performed. The assessee furnished

complete details of advances with evidence. The assessee also

provides ledger accounts, agreement and invoices. The assessing

officer held that assessee regularly received payments against sales

book by it. None of the ledger indicates any advance paid to the

assessee. The assessing officer treated such amount as unexplained

credit. The DRP upheld the action of AO. We find that no

independent investigation was carried out by assessing officer

despite providing complete details of advances. The ld. AR before us

submitted that assessee offered the tax pertaining to such advances

in subsequent years. We find that once the transaction has been

accepted in subsequent years, no addition in respect of such

advances can be made without bringing any adverse material on record. Similar view was taken by coordinate bench of Surat

Tribunal in ACIT vs Shah Virchand Govanji Jewellers Pvt. Ltd.

(supra). Hence, we direct the AO to delete the entire addition.

exchange loss of Rs. 91.68 lacs. The ld. AR of the assessee submits

that during assessment, the assessing officer sought reconciliation

of gross receivable of Rs. 50.90 crore vis-à-vis operating revenue of

Rs. 43.69 crore of the assessee for the year under consideration.

The assessee provided reconciliation, copy of which is placed on

record. On perusal of such reconciliation, the assessing officer

alleged that assessee has understated its income by not adding

back foreign exchange loss of Rs. 91,68,000/-, especially

considering that assessee has reduced the amount of foreign

exchange gain from gross receivable. The operating revenue figures

derived through reconciliation provided by assessee exactly matches

the audited financial statement and has been fully offered to tax.

The net foreign exchange difference (both gain and loss) shown

separately as “other income” in the accounts and have been fully

brought to tax so there is no question of any income having been

understated. The allegation understatement income on account of

no addition of foreign exchange loss in the reconciliation is

therefore, misconceived and deserves to be rejected.

net amount is offered to tax, same should have been reduced from the head of income of business and profession. During assessment,

the assessing officer noted that under the different heads only the

amount net of gain and loss has been offered. The assessing officer

concluded that while gross amount of forex gain has been reduced

from the head business and profession, only the net amount has

been offered. It was pointed out that either only the net amount is

reduced from the head income or if gross amount is reduced then

losses are to be added to bring out the effective amount that is

under the head business and profession. AS – 11 clearly mentioned

that recognition of forex gain, or loss is at prevailing exchange rate

as per page 152 the recognition at the monetary settlement is

either in the form of income or expenditure. The assessee failed to

explain the observation of assessing officer. Thus, the addition may

be sustained.

foreign currency fluctuation losses are considered in the audited

financial statement separately under the Note – 19 – other income,

which provides separate line items – foreign exchange gain. The

assessee has gain of Rs. 1,59,54,673/- and loss of Rs. 91,68,000/-

and net impact considered in the audited financial statement of Rs.

67,86,673/-. The net profit before tax earned by assessee is of Rs.

39,79,282/-. The ld. AR of the assessee also carried us through the

statement of total income wherein Rs. 39,79,282/- has been

included in the total income. The ld. AR of the assessee submits that assessee has not taken any deduction of foreign exchange gain

or made any adjustment towards foreign currency fluctuation. Thus,

the contention of ld. DR for Revenue that assessee made

adjustment and the time of computing taxable income is completely

unfounded and misplaced. AS-11 has no co-relation to the issue in

hand and was never relied by lower authorities during the

assessment proceeding. The financial statement of assessee is

audited by reputed chartered accountant firm and is held to be in

compliance with relevant accounting standard. Thus, addition on

account of foreign exchange fluctuation loss is not justified.

have gone through the orders of lower authorities carefully. We find

that assessing officer made addition on account of foreign exchange

fluctuation loss of Rs. 91,68,000/- by taking view that assessee has

reduced foreign currency fluctuation gain only from gross trade

receivable without simultaneous addition of foreign currency loss of

Rs. 91.68 lacs inspite of the fact that both gain and loss are directly

related to trade receivable. The DRP upheld the action of assessing

officer by holding that assessing officer has carried out an

exhaustive reconciliation exercise and found that the assessee has

reduced forex fluctuation gain from gross receivable, the assessee

had not added back the forex fluctuation losses accordingly an

understatement of Revenue to that extent was found by assessing

officer and no interference is called for. Before us, the ld. AR of the assessee vehemently argued that operating revenue figure derived

through the reconciliation provided by assessee, exactly matches

with audited financial statement and has been fully offered to tax. It

is further contention of ld. AR of the assessee that net foreign

exchange difference, both gains and losses shown separately as

“other income” in the accounts, have been fully brought to tax so

there is no question of any income having been understated. At the

time of hearing the ld AR of the assessee demonstrated that foreign

currency fluctuation losses are considered in the audited financial

statement separately under the Note – 19 – other income, which

provides separate line items – foreign exchange gain. We find that

the assessee has gain of Rs. 1,59,54,673/- and loss of Rs.

91,68,000/- and net impact is considered in the audited financial

statement of Rs. 67,86,673/-. The net profit before tax earned by

assessee is of Rs. 39,79,282/-. We find that the assessee has

already included as net of Rs. 39,79,282/-, in the computation of

total income. Thus, we do not find any justification for adding back

foreign currency fluctuation.

Rs. 2.12 Crore. The ld AR of the assessee submits that the

assessing officer erroneously made addition of Rs. 22,60,512/-

without providing basis. On the other hand, the ld Sr DR for the revenue submits that assessing officer may be directed to

recompute it afresh.

officer is directed to recompute the interest and fee in accordance

with law. Needless to direct that before passing the order the AO

shall provide fair and reasonable opportunity to the assessee. In the

result, this ground no. 11 is allowed for statistical purpose.

grounds of appeal are premature and need no specific consideration

at this stage or in the present proceedings. Ground No.1 relates to

passing of final assessment order beyond the time limit under

section 153. Considering the facts that we have allowed relief to the

assessee on merit, hence, this ground of appeal has become

academic and dismissed as infructuous.

Order was pronounced in the open Court on 26/05/2026.

Sd- Sd-

GIRISH AGRAWAL PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER

MUMBAI, Dated: 26 /05/2026 Biswajit Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); By order (4) The DR, ITAT, Mumbai; and (5) Guard file. Assistant Registrar/DDO ITAT, Mumbai