SOTI INDIA PRIVATE LIMITED,GURGAON, HARYANA vs. INCOME TAX OFFICER, NATIONAL FACELESS ASSESSMENT CENTRE, DELHI, DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’, NEW DELHI BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI MANISH AGARWAL, ACCOUNTANT MEMBER IT(TP)A No. 5554/Del/2024 & SA No. 236/Del/2025 Assessment Year: 2021-22

Soti India Private Limited Vs Income Tax Officer, Block-A, 2nd Floor Bestech Business Circle- 28(1), Tower, Sohna Road, National Faceless Centre, Sector-48, Delhi Gurgaon- 122018 Haryana (APPELLANT) (RESPONDENT) PAN No. AATCS2315L

Assessee by: Shri Ritesh Bajaj, Adv. Revenue by : Shri Dharam Veer Singh, CIT(DR) Date of Hearing: 25.05.2026 Date of Pronouncement: 30.07.2026

ORDER This assessee’s appeal ITA No. 5554/De/2024 along with its stay application SA No. 236/Del/2025, is directed against the assessment unit’s assessment order dated 25.09.2024 having DIN & Order No. ITBA/AST/S/143(3)/2024-25/1069101121(1), framed as per the Dispute Resolution Panel-1, New Delhi’s order/directions dated 30.08.2024 having DIN & Order No. ITBA/DRP/M/144C(5)/2024-25/1068172470(1); involving proceedings u/s 144C(5) of the Income Tax Act, 1961; hereinafter referred to as, “the Act”. Heard both the parties at length. Case files perused.

3 law in modifying the Quantitative filter of Services income by Net Sales of more than 25% applied by the Assessee corresponding to 75% wrongly applied by Ld. TPO/ AO after giving effect to the directions of Ld. DRP. (Please refer page no. 11 of Final AO Order).

Ground No. 3: Ground relating to Comparable Companies selected by the Appellant but rejected by Ld. TPO:

 The Ld. Panel has erred in law by violating the provisions of subsection 8 of Section 144C of the Income Tax Act which state that the Ld. Panel shall not set aside any proposed variation or issue any direction under sub- section (5) for further enquiry and passing of the assessment order. The Ld. Panel has erred in law by directing the Ld. TPO to reverify functional comparability of the accepted companies without issuing any detailed guidelines for the same.

A. Rejection on the basis of RPT Filter (RPT/ Net Sales):

On the facts and circumstances of the case and in law, The Ld. AO/TPO has erred in rejecting following comparable companies, after giving effect to the directions of Ld. DRP:

a. Ideavate Solutions Pvt. Ltd.: The Appellant has provided the relevant extract of the Annual report were there was no related party transactions during the year. But no considering the assessee's contention the TPO erred in rejecting the said functionally comparable company and also didn't provide any proper justification for not accepting the same even after being directed by the DRP stating that the same should be considered after re-verification. (Please refer page no. 25 ofFinal AO Order)

b.Issumation Technologies Pvt. Ltd.: The company passes RPT filter in 2 out of 3 years under consideration. c. E-Zest Solutions Pvt. Ltd: The company passes RPT filter in 2 out of 3 years under consideration. (Please refer page no. 24 ofFinal AO Order)

B. Rejection on the basis of Persistent Loss:

The Ld. AO/TPO has erred in rejecting following companies on the basis of Persistent Loss filter:

a. Rheal Software Pvt. Ltd.: The Appellant has contented that the entity.is passing the persistent loss

4 filter alleged by the Ld. TPO/ AO in the SCN, based on which the Assessee contended before the Ld. DRP that this comparable is passing the persistent loss filter. However, the Ld. DRP ered in passing the direction to Ld. TPO/ AO to review the FAR similarity & passing all filters. The Ld. TPO/ AO, erred in rejecting the comparable on functional profile & not commenting on the actual fact for which it was earlier rejected i.e. on persistent loss filter. (Please refer page no. 25 & 44 of Final AO Order)

C. Rejection on the basis of Different year Filter:

The Ld. AO/TPO has erred in rejecting following companies on the basis of Different year Filter: a. R Systems International Ltd.: The Ld. AO/ TPO have erred in rejecting the said comparable stating that the comparable follows a different financial year as compared to the appellant's year of operation. (Please refer page no. 25 & 44 of Final AO Order)

Ground No. 4: Ground relating to Additional Companies selected by Ld. TPO

 The Ld. Panel has erred in law by violating the provisions of subsection 8 of Section 144C of the Income Tax Act which state that the Ld. Panel shall not set aside any proposed variation or issue any direction under sub- section (5) for further enquiry and passing of the assessment order. The Ld. Panel has erred in law by directing the Ld. TPO to reverify functional comparability of the accepted companies without issuing any detailed guidelines for the same.

 The Ld. AO/TPO has erred in accepting following functionally dissimilar companies as comparables of the assessee, after giving effect to the directions of Ld. DRP:

A. Functionally Comparability a. Cybage Software Pvt. Ltd.: The Company is functionally dissimilar to the appellant.

b. Nihilent Ltd.: The Company is functionally dissimilar to the appellant.

C. Great Software Laboratory Pvt. Ltd.: The Company is functionally dissimilar to the appellant . d. Orion India Systems Pvt. Ltd.: The Company is functionally dissimilar to the appellant.

e. Envecon Global Solutions Pvt. Ltd.:

5 The Company is functionally dissimilar to the appellant.

f. Athena Global Technologies Ltd.: The Company is functionally dissimilar to the appellant. (Please refer page no. 20-22 of Final AO Order)

B. Significant Intangible Assets The Ld. TPO has erred in selecting the following company holding significant intangible assets:

a. Orion India Systems Pvt. Ltd.:

It holds significant Intangible Assets i.e. product development, software (intangible assets are more than 5% of total assets). (Please refer page no. 21 of Final AO Order)

The Hon'ble DRP Panel has erred in facts and in law to direct the deletion of Quantitative filter related to Significant Intangible Assets thereby disregarding the contentions of the Appellant.

C. Companies earning abnormally high profit margin The Ld. TPO has erred in selecting the following companies earning abnormally high profit margin:

a. Cybage Software Pvt. Ltd. The company earns abnormally high profit margin of 48.16%. (Please refer page no. 21 of Final AO Order)

b. Envecon Global Solutions Pvt. Ltd.

The company earns abnormally high profit margin of 43.23%. (Please refer page no. 22 of Final AO Order) The Ld. Panel has erred in facts by directing the Ld. TPO to accept companies earning supernormal profits (abnormal profits), thereby disregarding the contentions of the Appellant.

D. Companies with high turnover The Ld. TPO has erred in selecting the following company with high turnover:

a. Cybage Software Pvt. Ltd.

The company has a turnover which is 20 times more than of the appellant. (Please refer page no. 20 of Final AO Order) In this regard, the Ld. Panel has erred in facts by directing that comparables cannot be rejected solely on the grounds of high turnover, thereby disregarding the contentions of the Appellant.

6 E. Companies with Extraordinary Event The Ld. TPO has erred in selecting the following company which have entered into an extraordinary event:

a. Nihilent Ltd.

The company is engaged in diversified business and in FY 20-21 the said company has underwent an extraordinary event such as restructuring & acquisition.

In this regard, the Ld. Panel has erred in facts by directing that comparables cannot be rejected solely on the grounds of entering into an extraordinary event, thereby disregarding the contentions of the Appellant. (Please refer page no., 21 of Final AO Order)

F. Comaparable sent for reverification by DRP but accepted by TPO after giving effect to DRP direction without commenting on the RPT filter & employee cost filter calculation provided by the Appellant:

The Ld. AO/TPO has erred in accepting following functionally dissimilar companies as comparables of the assessee, after giving effect to the directions of Ld. DRP:

a. Athena Global Technologies Ltd.: The comparable is also getting rejected on RPT filter. The said company is failing the Employee cost filter applied by the appellant. (Please refer page no. 21 & 42 of Final AO Order)

Ground No. 5: Ground relating to Working Capital Adjustment

The Ld. AO/TPO has erred in not considering working capital adjustment while computing the Arm's length range. The DRP panel has directed to Ld. TPO to consider the working capital based on the data and the facts submitted by appellant but the Ld. TPO in its final order after giving effect to the direction's of DRP stated that no relevant data has been shared by appellant and has the working capital adjustment cannot be granted when in fact the all the relevant data as well as the working has been shared with the Ld. TPO for verification. (Please refer page по. 28 & 48 of Final AO Order)

Ground No. 6: Ground related to Interest on Trade Receivable

The Ld. AO/TPO has erred in recharacterizing overdue receivables from the AE as a deemed loan stating that it constitutes a separate international transaction and proposing an adjustment considering the interest rate of

7 4.465% (6-month LIBOR + 400 basis Point). AO has not placed reliance on the directions given by the respective DRP panel stating that the Panel Upholds 6-month LIBOR Plus 400 basis points, i.e. 1.85% as the appropriate CUP instead of SBI PLR applied by the TРО. However, the Ld. TPO in it's order giving effect to DRP direction has erred on applying the an interest of 4.465%. This led to an increase in the interest on the trade receivables. (Please refer page no. 35 & 48 of Final Assessment Order) Ground No. 7: Ground related to Levy of Interest u/s 234 of the Act The Ld. AO has erred in levy of interest under Section 234A, 234B and 234C of the Act which has been wrongly charged on the assessed income of Rs. 18,79,126/, after making the addition of Rs. 2,92,81,096/- and giving effect to the directions of Ld. Panel. Ground No. 8: Ground related to penalty proceedings u/s 274 of the Act. In view of the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under Section 274 read with Section 270A of the Act for under reporting of income. The Appellant further craves leave to add, alter, modify or delete one or more grounds of appeal before or at the time of hearing.”

8 5. We now advert to the assessee’s ground no. 2 “A” raising the issue of quantitative filter. Learned counsel refers to the case law Motorola Solutions Private Limited vs ACIT (2014) 48 taxmann.com 248(Del.) holding that such a filter has to be applied in light of employees cost to that of sales @ 50% to 80%. Learned counsel’s case admittedly is that we ought to follow the very filter as the assessee’s relevant segment herein is of software development services. We thus direct the learned “TPO” to finalize his computation afresh in very terms. The Revenue’s vehement contentions against the same stand rejected therefore.

9 tax ([2025] 176 taxmann.com 465(Del.) has already concluded in Para 10 that its segmental data is not available in the data base. We thus reject the Revenue’s vehement contentions supporting its inclusion in the array of comparables and direct the learned TPO to exclude it for the purpose of the assessee’s arms’ length price; determination afresh. Same order to follow in the assessee’s ground no. “b” herein as M/s Nihilent Ltd had undergone any extra-ordinary event of amalgamation w.e.f. 01.04.2020 as evident from a perusal of page 2757 of the paperbook herein. Learned TOP is accordingly directed to exclude this second entity from the assessee’s comparables.

10 Systems Limited from the assessee’s list of comparables in very terms therefore.

11 taxmann.com 431(Del); on the instant issue(s), reading as under:

“6. As regards the proposed questions 2.3 and 2.4 pertaining to adjustments on account of delay in realization of receivables, the DRP held that in view of explanation (i)(c) to Section 92B of the Act, deferred receivables from AE is an international transaction and that aggregation of transaction is possible only when the transactions are continuous and closed linked but the respondent/assessee had failed to discharge its onus to establish that the transaction of outstanding receivables was not a separate transactions and no separate adjustment on that account was warranted; and that the respondent/assessee had failed to establish that delay in payment of receivables was compensated by AE through a set off.

6.1 In the impugned order, the Tribunal accepted the claim of the respondent/assessee that it being a debt free company, no adjustment on account of notional interest on receivables was warranted in view of an earlier decision of a coordinate bench of the Tribunal. On this aspect, learned counsel for appellant/revenue contended that the Tribunal fell in error by blindly following the decision of the its coordinate bench in the respondent/assessee's case for Assessment Year 2010-11 by holding that the respondent/assessee was a debt free company and there was no need to impute notional interest on outstanding receivables.

6.2 The fact that the respondent/assessee is debt free is not contested. Given this position, the question is as to whether adjustment on account of notional interest on receivables could have been made.

6.3 This issue stands clearly covered by the decision of a coordinate bench of this court in the case of Pr. CIT v. Boeing India (P.) Ltd. [2023] 146 taxmann.com 131/457 ITR 84 (Delhi), in which after traversing through various judicial precedents, the court held that the assessee company being a debt free company the question of receiving any interest on receivables did not arise so the adjustment made by the

12 Assessing Officer on account of interest on outstanding receivables was liable to be deleted.

6.4 Earlier, in similar circumstances, the issue came up before the Income Tax Appellate Tribunal in the case of Bechtel India (P.) Ltd. v. Dy. CIT [2016] 66 taxmann.com 6 (Delhi - Trib.) and the Tribunal held that the assessee being a debt free company, it would not be justifiable to presume that the borrowed funds have been utilized to pass on the facilities to its AEs and the revenue also had not brought on record that the assessee had been found paying interest to its creditors or suppliers on delayed payments. This view of the Income Tax Appellate Tribunal was upheld by a coordinate bench of this court in appeal titled Pr. CIT v. Bechtel India (P.) Ltd. [IT Appeal No. 379 of 2016, dated 21-7-2016], observing that no substantial question of law arose as the Tribunal had returned a finding of fact to the effect that the assessee was a debt free company and a question of receiving any interest on receivable did not arise. Against the said judgment, Pr. CIT v. Bachtel India (P.) Ltd. CC No.(s) 4956 of 2017 preferred by the revenue was dismissed vide order dated 21-7-2017.

6.5 In the case of Pr. CIT v. Kusum Healthcare (P.) Ltd. [2018] 99 taxmann.com 431/[2017] 398 ITR 66 (Delhi), a coordinate bench of this court also dealt with the amendment brought in Section 92B of the Act by way of insertion of an explanation and held thus:

"8. Aggrieved by the said order, the assessee filed an appeal before the Income-tax Appellate Tribunal. By the impugned order dated March 31, 2015, the Income-tax Appellate Tribunal set aside the assessment order. The Income-tax Appellate Tribunal noted that the assessee had undertaken working capital adjustment for the comparable companies selected in its transfer pricing report. It was further noted that "the differential impact of working capital of the assessee vis-a-vis its comparables had already been factored in the pricing/profitability" which was more than the working capital adjusted margin of the comparables and, therefore, "any further adjustment to the margins of the

13 assessee on the pretext of outstanding receivables is unwarranted and wholly unjustified 10. The court is unable to agree with the above submissions. The inclusion in the Explanation to section 92B of the Act of the expression "receivables" does not mean that dehors the context every item of "receivables" appearing in the accounts of an entity, which may have dealings with foreign associated enterprises would automatically be characterised as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the assessee will have to be studied. In other words, there has to be a proper inquiry by the Transfer Pricing Officer by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an associated enterprise, the arrangement reflects an international transaction intended to benefit the associated enterprise in some way." (Emphasis is Ours) 6.6 That being so, in our view the questions 2.3 and 2.4 proposed by the appellant/revenue cannot be treated as substantial question of law for present purposes."

14 Para 9.11 page 32, the Transfer Pricing Officer had simply adopted SBI landing rate which has been converted to LIBOR + 400 basis points and in tune with “CUP” i.e., comparable uncontrolled price method against the assessee. Faced with this situation, we sought to ascertain as to whether there is any segmental comparable in the case records prompting the learned panel to adopt the aforesaid direct method or not. No such specific supportive material or evidence has been referred by the Revenue side during the course of hearing before us. We accordingly are of the considered view that once the impugned adjustment relating to the assessee’s trading receivables has nowhere been computed as per the very segmental trends, the learned DRP’s directions adopting CUP method could not be concurred with. We thus delete the impugned adjustment for this precise reason. Needless to state, its working capital adjustment is directed to be considered afresh as per law in light of their lordships discussions and findings in Kusum Healthcare Private Limited(supra).

15 No.236/Del/2025 stands rendered infructuous. A copy of this common order be placed in the respective case files.

Order pronounced in the open court on 30.07.2026 .

Sd/- Sd/- (MANISH AGARWAL) (SATBEER SINGH GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 30.07.2026 *Pooja Mittal, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR