M/S. MARLABS INNOVATIONS PRIVATE LIMITED ,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4(1)(1), BANGALORE

ITTPA 1809/BANG/2024Status: DisposedITAT Bangalore11 September 2026AY 2020-2143 pages
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What were the facts?

The assessee, M/s. Marlabs Innovations Private Limited, engaged in software development, consultancy, and IT enabled services, filed its return of income for Assessment Year 2020-21 on February 9, 2021, declaring a total income of Rs. 19,91,02,180. The case was selected for scrutiny due to large international transactions, low profitability, and a large refund claimed. Following notices and a reference to the Transfer Pricing Officer (TPO), an upward adjustment of Rs. 23,29,45,832 was made. The Assessing Officer (AO) made draft additions totaling Rs. 1,83,50,950 under various sections. The Dispute Resolution Panel (DRP) reduced the transfer pricing adjustment to Rs. 17,93,05,741, leading to a final assessment order determining income at Rs. 40,47,58,052. The assessee appealed this order.

What did the Tribunal hold?

The Tribunal allowed the assessee's ground relating to the disallowance of depreciation of goodwill under section 32 of the Act. It held that the amendment by the Finance Act 2021 excluding goodwill from depreciable intangible assets was not applicable for AY 2020-21. Following the ratio laid down by the Supreme Court in Smifs Securities Ltd., the Tribunal directed the AO to allow depreciation claimed by the assessee on goodwill arising on amalgamation, considering it as an asset whose value was enhanced. The Tribunal also directed the AO to verify the TDS credits claimed by the assessee and grant credit subject to verification, allowing this ground for statistical purposes. Grounds B4, B5, and B6 were noted as consequential and not adjudicated. The Tribunal did not provide a specific finding on the transfer pricing adjustments, disallowance under section 14A, disallowance of legal and professional fees, or disallowance under section 80JJAA, but the overall result indicates these were not fully allowed.

What were the issues?

1. Whether the Tribunal had to decide on the legality of the transfer pricing adjustment of Rs. 17,93,05,741 made by the AO, TPO, and DRP under section 92CA of the Income Tax Act, 1961, considering the assessee's arguments regarding the rejection of its segmentation, transfer pricing documentation, comparability analysis, filters used, and treatment of trade receivables. 2. Whether the Tribunal had to decide on the disallowance under section 14A of the Act amounting to Rs. 18,25,392, with the assessee contending that no exempt income was earned or expenditure incurred in relation to investments, and that the amendment to section 14A by the Finance Act 2022 was not applicable for the current AY. 3. Whether the Tribunal had to decide on the disallowance of legal and professional fees of Rs. 1,41,20,354 under section 37 of the Act, with the assessee arguing that the services were availed for business purposes. 4. Whether the Tribunal had to decide on the disallowance under section 80JJAA of the Act amounting to Rs. 11,85,206. 5. Whether the Tribunal had to decide on the disallowance of depreciation of goodwill under section 32 of the Act amounting to Rs. 92,13,919. Assessee's contentions: The assessee argued that the transfer pricing adjustments were erroneous, that its segmentation and TP documentation were wrongly rejected, that the comparability analysis and filters used were non-transparent, that trade receivables were wrongly treated as loans, and that interest was incorrectly computed. Regarding corporate tax, the assessee argued that section 14A disallowance was incorrect as no exempt income was earned, and the amendment was prospective. It also argued that legal and professional fees were for business purposes, and the disallowance under section 80JJAA and depreciation on goodwill were erroneous. Revenue's contentions: The judgment does not record specific arguments made by the revenue for each issue.

Which sections of the Income-tax Act were involved?

Section 92CA,Section 143(3),Section 144C(13),Section 144B,Section 92B,Section 143(2),Section 142(1),Section 92CA(3),Section 14A,Section 37,Section 80JJAA,Section 32,Section 92C,Section 32(1),Section 28,Section 41

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Income Tax Appellate Tribunal, BANGALORE BENCHES, BANGALORE

Before: SHRI BALAKRISHNAN S & SHRI KESHAV DUBEY

Pronounced: 11.09.2026

Per Balakrishnan S, Accountant Member :

This appeal is filed by the Assessee against the Final Assessment Order passed under section 143(3) r.w.s. 144C(13) r.w.s. 144B of the Act, dated 23.07.2021. IT(TP)A No.1809/Bang/2024

2.

Brief facts of the case are assessee is engaged in the profession of software development, consu

The order continues below.

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