FRACTAL ANALYTICS LIMITED,MUMBAI, MAHARASHTRA vs. CIRCLE 1(3)(1), DEPUTY COMMISSIONER OF INCOME TAX , AAYAKAR BHAWAN, MUMBAI, MAHARASHTRA

ITA 764/MUM/2026Status: DisposedITAT Mumbai22 September 2026AY 2022-2324 pages
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What were the facts?

The assessee, Fractal Analytics Limited, filed an appeal against the order of the Assessment Unit, Income Tax Department, for Assessment Year 2022-23. The assessment order, dated December 24, 2025, determined the total income at Rs. 203,86,16,710, significantly higher than the Rs. 14,81,47,900 reported in the return of income. The assessee's grounds of appeal challenge the assessment order as time-barred, the reference to the Transfer Pricing Officer (TPO), and various transfer pricing adjustments made to the international transaction of provision and availing of integrated IT enabled services. The dispute also involves the determination of the most appropriate method (MAM) for benchmarking, the application of the Residual Profit Split Method (RPSM), and the allocation of routine returns and residual profits. Additionally, the appeal addresses the set-off of current-year business loss.

What did the Tribunal hold?

The Tribunal decided the following: Regarding the corporate guarantee (Grounds 20-23), the Tribunal restored the issue of computation of the arm's length rate to the file of the TPO. It held that the interest-saving approach is a recognized method for benchmarking corporate guarantees, but the rate accepted in one case cannot be automatically applied to another. The TPO must examine the assessee's interest-saving analysis, the borrower's standalone credit profile, borrowing rates with and without the guarantee, currency, tenure, security, and extent of guarantee coverage to quantify the economic benefit and compute the appropriate remuneration. The TPO's rate of 1% based on commercial bank guarantees and the assessee's rate of 0.30% were not sustained without proper factual examination. Regarding the set-off of current-year business loss (Ground 24), the Tribunal directed the Assessing Officer to verify the return of income, computation, and assessment records and allow the set-off to the extent permissible under the Act. The Tribunal did not explicitly rule on all the grounds related to transfer pricing adjustments concerning integrated IT enabled services, the time-barring of the assessment, or the specific challenges to the RPSM application and comparable selections. However, by allowing grounds 20-23 and 24 for statistical purposes and stating the appeal is partly allowed, it indicates that some issues were resolved in favor of the assessee, while others might have been remanded or not fully decided in the provided excerpt. The ratio for benchmarking corporate guarantees is that the interest-saving approach requires a detailed, fact-specific analysis of the borrower's credit profile and borrowing costs, rather than mechanical application of rates from other cases or reliance on bank guarantee data without adjustments.

What were the issues?

The Tribunal had to decide the following issues: 1. Whether the assessment order dated December 23, 2025, passed under Section 143(3) of the Income Tax Act, 1961, is time-barred. 2. Whether the transfer pricing adjustment of Rs. 189,04,68,810 made to the income for AY 2022-23 is warranted. a. Whether the Residual Profit Split Method (RPSM) is the most appropriate method (MAM) for benchmarking the international transaction of provision and availing of integrated IT enabled services, and if the assessee's transaction was at arm's length based on the TPO's analysis. b. Whether Section 92(3) of the Act was correctly applied to disallow adjustments that reduce taxable income. c. Whether there was justification for making transfer pricing adjustments beyond the accepted RPSM as MAM. d. Whether the assessee's margin was arbitrarily compared with an arm's length margin. e. Whether a transfer pricing adjustment was made without applying prescribed methods under Section 92C(1). f. Whether the assessee's margin was correctly calculated, considering operating income and non-operating costs. g. Whether modifications to the RPSM steps were justified, especially when the methodology was accepted in the previous year. h. Whether the allocation of routine return to Fractal affiliates at cost plus 5% instead of cost plus 10% was correct. i. Whether the allocation of routine return to the assessee at cost plus 23.34% instead of cost plus 15% was correct, including issues with the TPO's selection and rejection of comparable companies and rectification of margins. j. Whether the ratio for allocation of residual profit/loss between the assessee and Fractal US V was correctly determined. 3. Whether the set-off of current-year business loss is permissible. Assessee's Contentions: The assessee argued that the assessment order was time-barred. Regarding transfer pricing, it contended that RPSM was the MAM, and its transaction was at arm's length. It argued that Section 92(3) should not lead to adjustments that reduce taxable profit when the transaction is already at arm's length. The assessee also argued for consistency in RPSM application with the previous year, challenged the TPO's modifications to routine return allocation, comparable selection, and margin calculations. It also disputed the residual profit allocation ratio. For the business loss, the assessee sought its set-off. Revenue's Contentions: The revenue, through the CIT DR, argued for the validity of the assessment and the transfer pricing adjustments made by the TPO. Specific arguments for each ground were not explicitly detailed in the provided excerpt, but the TPO's adjustments and the assessment order were defended.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 153,Section 92(3),Section 92C(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI

Before: SHRI VIKRAM SINGH YADAV & SHRI SIDDHARTHA NAUTIYAL

For Respondent: Shri Ashish Kumar CIT DR

PER SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:

This appeal is filed by the Assessee against the order of Ld. Assessment Unit, Income Tax Department vide DIN: ITBA/AST/S/143(3)/2025- 26/1083994435(1) dated 24-Dec-2025 for the Assessment Year 2022-23. The Assessee has raised the fo

The order continues below.

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