FREYR SOFTWARE SERVICES PRIVATE LIMITED,HYDERABAD vs. DCIT, CIRCLE-8(1), HYDERABAD

ITTPA 345/HYD/2026Status: DisposedITAT Hyderabad07 August 2026AY 2022-2324 pages
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What were the facts?

The assessee, Freyr Software Services Private Limited, is engaged in providing regulatory compliance services to Freyr Inc., USA. The appeal is against the final assessment order for Assessment Year 2022-23, passed under Section 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961, pursuant to directions from the Transfer Pricing Officer (TPO) and the Dispute Resolution Panel (DRP). The TPO had made a transfer pricing adjustment of INR 22,35,37,299. The assessee's primary contention is that Freyr India and Freyr Inc. do not constitute Associated Enterprises (AEs) and that the TPO erred in invoking Section 92C(3) and selecting Freyr India as the tested party. The amount in dispute is INR 22,35,37,299.

What did the Tribunal hold?

The Tribunal held that the arguments of the assessee regarding the selection of the tested party and foreign comparables lack merit. Citing the case of M/s. IZMO Ltd. vs. DCIT, the Tribunal rejected the contention that a foreign AE must be regarded as the tested party, stating that geographical and economic circumstances of foreign comparables may differ and not reflect the correct Arm's Length Price (ALP). Therefore, the Tribunal upheld the TPO's reasons for selecting the assessee (Freyr India) as the tested party. However, the Tribunal found that the TPO's re-characterization of the assessee's services as KPO and the selection of various comparables were incorrect. The Tribunal noted that the assessee provides domain-specific regulatory affairs (RA) services, which are not specifically included in the definition of KPO services under Rule 10TA(g). Many companies selected by the TPO were involved in R&D, engineering, IT, advertising, and gaming. Consequently, the Tribunal set aside the issue to the Assessing Officer (AO)/TPO for a fresh benchmarking analysis and selection of appropriate comparables, directing them to provide an opportunity to the assessee to explain its case and file relevant details. The appeal was allowed for statistical purposes.

What were the issues?

1. Whether the invocation of Section 92C(3) of the Income-tax Act, 1961, and the subsequent transfer pricing adjustment of INR 22,35,37,299 were erroneous, considering the assessee's argument that Freyr India and Freyr Inc. do not satisfy the conditions of Section 92A(2) to be considered Associated Enterprises (AEs) and that commercial collaboration or voluntary filing of Form 3CEB does not create an AE relationship. The assessee relies on judicial precedents stating Section 92A(2) provides an exhaustive list of circumstances for an AE relationship. 2. Whether the TPO erred in rejecting the assessee's Functional, Asset, and Risk (FAR) analysis and arbitrarily selecting Freyr India as the tested party, contrary to settled transfer pricing principles which advocate for the least complex entity. The assessee argues that Freyr Inc. is the least complex entity and that selecting Freyr India as the tested party leads to absurd results, violating Section 92 to 92F. 3. Whether the TPO erroneously characterized Freyr India's services as Knowledge Process Outsourcing (KPO) and incorrectly applied filters for rejecting comparable companies, including industry leaders and non-comparable companies, and failed to allow adjustments for differences in functions and risks. The assessee contends that the TPO's approach was mechanical and did not consider the commercial and economic reality of the business model.

Which sections of the Income-tax Act were involved?

Section 92C(3),Section 92A,Section 92A(2),Section 92,Section 92F,Section 143(3),Section 144C(13),Section 144B,Section 92CA(3)

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Income Tax Appellate Tribunal, Hyderabad “B” Bench, Hyderabad

PER MANJUNATHA G., A.M : This appeal filed by the assessee is directed against the final assessment order passed by the Assessing Officer under section 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 (in 2 short “the Act”), dated 29.12.2025 in pursuant to the order of the Learned Transfer Pricing Officer (in short “Ld. TPO”) under section 92CA(3) of the Act,

The order continues below.

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