ALTISOURCE BUSINESS SOLUTIONS PRIVATE LIMITED,BENGALURU vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1(1)(1), BANGALORE , BENGALURU

Per Prashant Maharishi, Vice President 1. This appeal is filed by Altisource Business Solutions Private Limited (the assessee/appellant) for the assessment year 2020-21 against the final assessment order passed u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 [the Act] by the Assessment Unit of the Income Tax Department dated 23.7.2024 wherein the return of income

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filed by the assessee of Rs.110,31,62,580 was assessed at Rs.183,08,79,830.

“General Grounds 1. The impugned final assessment order has been passed without following due procedure laid down in law, and hence, bad in law. 2 The impugned order of the Ld AO passed pursuant to the order of the Deputy/Assistant Commissioner of Income Tax - Transfer Pricing - 1(1)(1). Bengaluru (hereinafter referred to as the 'Transfer Pricing Officer' or 'Ld. TPO') and the directions issued by the Hon'ble DRP are based on incorrect appreciation of facts and Incorrect interpretation of law. and therefore erroneous, bad In law, and contrary to the facts and circumstances of the case. 3. The Learned AO has erred in assessing the total income of the Appellant at INR 1.83,08,79,830 as against INR 1,10,31,62.580 claimed in return of income filed by the Appellant 4 The Ld. AO erred in determining a sum of INR 26,46,03.895 as balance tax payable by the Appellant. 5 The learned AO has erred in not considering the additional claim made by way of proposed revised return of income prepared based on audited financial statements. Corporate tax grounds 6. Disallowance of deduction claimed under section 80G of the Act [INR 5,43,791] 6.1 The Learned AO/ the Montle DRP erred in law and on facts by disallowing deduction of INR 5,43,791 claimed under section 80G of the Act holding that the contributions towards

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Corporate Social Responsibility ('CSR') are not eligible for deduction under section 80G of the Act 6.2 The learned AO/ Hon'ble ORP failed to appreciate the fact the Company had already disallowed CSR expenditure under section 37 of the Act and separately, claimed deduction of eligible donations made pursuant to CSR requirement. as provided and allowed under section 80G of the Act. 6.3 The learned AO/ Hon'ble DRP failed to appreciate that the donations to charitable trusts or Prime Minister's National Relief Fund are not specifically covered under the exclusions provided under section 80G of the Act i.e., contribution towards Swachh Bharat Kosh and Clean Ganga Fund 6.4 The learned AO/ Hon'ble DRP erred In law by disregarding the fact that the deductions claimed under section BOG of the Act pertained to eligible payments specified under section 80G of the Act. 6.5 The learned AO/ Hon'ble DRP failed to appreciate that the issue with respect to allowability of deduction under section 80G of the Act pursuant to CSR is grossly covered in favour of the taxpayers by the rulings pronounced by the Jurisdictional Hon'ble Bangalore Bench of the ITAT. 6.6 The learned AO/ Hon'ble DRP erred in law and on facts in concluding that the amount grouped under CSR contributions has not been paid on a voluntary basis and hence the same IS not eligible to be claimed as deduction under section 80G of the Act 6.7 The learned AO/ Hon'ble DRP erred in holding that any allowance of claim under section 80G of the Act (pursuant to CSR expenditure) would not meet the intention of the legislation, even though such intention of the legislation as perceived by the learned AO/ Hon'ble DRP has not been demonstrated by the provisions contained in section 80G of Me Act 7. Disallowing the payment made towards gratuity provision [INR 86.11,619]

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7.1 The Learned AO / Hon'ble DRP erred in law and facts by disallowing deduction claimed on payment of gratuity 7.2 The Learned AO / Neale DRP failed to consider the copies of full and final settlement statements furnished by the Appellant evidencing the payment made towards gratuity. 7.3 The Learned AO / Hon'ble DRP ought to have observed that the reconciliation of movement in gratuity as per management certified financial statements Is in consonance with the deduction claimed. 7.4 The Learned AO / Hon'ble DRP erred in alleging that bank statement highlighting gratuity payment was not furnished whereas the Appellant had already furnished bank statements highlighting significant gratuity payment made during AY 2020- 21. 8. Disallowance of depreciation on additional assets (INR 25.73,588] 8 1 The Learned AO / Hon'ble DRP has erred in law and facts by disallowing depreciation claimed on additions made to fixed assets during the AY 2020-21 8.2 The Learned AO / Hon'ble DRP failed to appreciate the fact that the Appellant had furnished copy of fixed asset register and copies of invoices evidencing additions made to fixed assets 8.3 The Learned AO / Hon'ble DRP erred In holding that the Appellant has not furnished vouchers, proof of assets being put to use whereas the copies of Invoices and fixed asset register was furnished during the course of assessment/DRP proceedings 9. Disallowance of leave encashment provisions under section 438 of the Act [INR 2,62,94,478] 9.1 The Learned AO / Neale DRP erred in law and facts by disallowing leave encashment provision without considering the submissions of the Appellant 9.2 The Learned AO / Hon'ble DRP ought to have appreciated the submission of the Appellant that the disclosure

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under clause 26 of Form 3CD is Incorrect and no provision was created for leave encashment as per the management certified financial statements for AY 2020.21 9.3 The Learned AO / Hon'ble DRP failed to consider the reconciliation furnished evidencing that no provision was created for leave encashment during the AN' 2020-21 10. Disallowance of software expenses (INR 2,71,60,000] 10.1 The Learned AO I Neale DRP erred in law and facts by disallowing software expenditure as capital in nature, which is entirely revenue in nature 10.2 The Learned AO / Hon'ble DRP ought to have appreciated the fact that software expenses are mainly incurred for short term license with respect to application software and such software are purchased to facilitate daily operations or management more efficiently 10.3 The Learned AO / Hon'ble DRP ought to have observed that the software purchased by the Appellant having enduring benefit is already capitalised in its books of accounts and only those which have short term license period were claimed as expense in profit & loss account 10.4 The Learned AO / Hon'ble DRP erred in alleging that the ledger extracts of software expenses were not furnished. whereas the Appellant had already furnished copies of ledger extract of software expenses 10.5 The Learned AO Hon'ble DRP erred in holding that the Appellant could not substantiate the claim with supporting documents, even after furnishing copies of ledger extract and copies of invoices evidencing the genuineness of the expenses. 10.6 The Learned AO / Hon'ble DRP erred In not providing any reasonable justification for not considering the technical arguments provided by the Appellant while rejecting the objections raised. 10.7 The learned AO/ Hon'ble DRP failed to appreciate the fact that the issue with respect to allowability of software

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expenses is grossly covered in favour of the Appellant in its own case by the jurisdictional Hon'ble Bangalore Bench of the ITAT. 10.8 The learned AO/ Hon’ble DRP erred in not considering various judicial precedents relied on by the Appellant during the course assessment proceedings or that were covered in objections filed before the Hon'ble DRP. 11. Disallowance of certain expenses u/s 37 of the Act on adhoc basis (INR 3,54,07,509] 11.1 The Learned AO / Hon'ble DRP erred in law and facts by disallowing certain other expenses on ad-hoc basis 11.2 The learned AO / Hon'ble DRP erred in alleging that the Appellant has not furnished ledger extract of the expenses, whereas ledger extracts sought were duly furnished during the course of assessment / DRP proceedings 11.3 The learned AO / Hon'ble DRP ought to have appreciated the submission of the Appellant providing basis for incurring each of the expenses. 11.4 The teamed AO/ Hon'ble DRP erred in not considering various judicial precedents relied on by the Appellant during the course assessment proceedings or that were covered in objections filed before the Hon'ble DRP 11.5 The learned AO/ Hon'ble DRP erred in holding that the assessee failed to comply with the specific requirements to substantiate the expenditures', even after furnishing the ledger extracts of such expenses 12. Disallowance of trade payables (INR 6,22,22,000] 12.1 The Learned AO I Hon'ble DRP erred in law and facts by disallowing 20% of trade payables under section 41(1) of the Act 12.2 The learned AO erred in law and facts by making the disallowance under section 41(1) of the Act whereas the disallowance proposed in the show cause notice was under section 68 of the Act.

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12.3 The Learned AO violated the principles of natural justice by making an adjustment under section 41(1) of the Act whereas no adjustment was proposed under section 41(1) In the show cause notice. 12.4 The Learned AO Hon'ble DRP failed to appreciate the technical submissions of the Appellant stating that section 41(1) of the Act shall not apply since there was no unilateral act of remission or cessation of liability 12.5 The learned AO/ Hon'ble ORP erred in not considering various judicial precedents relied on by the Appellant during the course assessment proceedings or that were covered in objections filed before the Hon'ble DRP 12.6 The learned AO/ Hon'ble DRP ought to have appreciated that all the outstanding trade payables wore paid during the subsequent financial year. 13. Addition on account of consideration received in slump sale [INR 4,14,79,500) 13.1 The Learned AO / Hon'ble DRP erred in law and facts by making an addition on account of consideration received in slump sale. 13.2 The Learned AO / Hon'ble DRP failed to take into account the slump sale agreement furnished during the course of assessment / DRP proceedings. 13.3 The Learned AO / Hon'ble DRP ought to have appreciated the Form 3CEA obtained based on management certified financial statements is in consonance with the income offered to tax. 13.4 The Hon’ble DRP erred in holding that the computation of capital gain is not substantiated with documentary evidence, even after the Appellant furnishing copy of revised Form 3CEA evidencing the claim. Transfer Pricing Grounds 14. The learned TPO/ AO have erred, in law and in facts, by not accepting the economic analysis undertaken by the Appellant

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in accordance with the provisions of the Act read with the Income Tax Rules 1962 ("the Rules"), conducting a fresh economic analysts for the determination of the ALP in connection with the impugned international transactions, and holding that the Appellant's impugned international transactions are not at arm's length. 15. The learned TPO! AO/ DRP have erred, in law and in facts, by applying the current year data filter, thereby accepting only those companies whose data is available for FY 2019-20 16. The learned TPO/ AO/ DRP have erred, in law and in facts, by applying different accounting year filter as a comparability criterion e. companies having accounting year other Than March 31 or companies whose financial statements were for a period other than 12 months) 17. The learned TPO/ AO/ DRP have erred in law and in facts, by using employee cost greater than 25 percent of turnover as a comparability criterion. 18. The Learned TPO / AO/ DRP erred, in law and in facts. by using a threshold as high as 75% of export sales to total sales selecting comparable. 19. The learned TPO/A0/ DRP have erred, in law and in facts, by applying a modified related party filter separately of related party revenue greater than 25% of sales and related party expenses greater than 25% of total expenses, for rejecting comparable companies. 20. The learned TPO/ AO/ DRP have erred, in law and in facts, by applying persistent loss filter for rejecting companies that have incurred loss for any two out of last three years under consideration, instead of excluding only such comparables which have incurred losses during all the three years under consideration. 21. The learned TPO/ AO/ DRP have erred, in law and in facts, in treatment of certain items In computing operating margin of Altisource India and comparable companies.

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22 The learned TPO/ AO !DRP have erred, In law and in facts, by accepting / rejecting certain companies based on unreasonable comparability criteria. (a) Rejecting the following comparable companies selected by the Appellant in its TP documentation IT enabled Services. 1. R Systems International Limited 2. Cosmic Global Limited 3. MAA Business Solution Private Limited Software Development Services 1. Rheal software Private Limited 2. TVS Infotech Limited 3. Harbinger Systems Private Limited 4. R Systems International Limited

(b) Accepting the following companies that should not be considered as comparable to the Appellant, on one or more grounds: IT enabled Services: 1. Infosys BPM Services Private Limited 2. Domex E Data Private Limited 3. Lagnam Infotech Solutions Private Limited 4. MPS Limited 5. TTEC India Customer Solutions Private Limited 6. Brickworks India Private Limited 7. Savitnya Technologies Private Limited Software Development Services: 1. Larsen & Toubro Infotech Limited 2. Nihilent Technologies Limited 3. Tata Elxsi Limited 4. Infosys Limited 5. Daffodil Software Private Limited 6. Sagarsoft India Limited

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(c) Accepting additional companies forming a part of our search matrix and identified to be comparable to Altisource India: Software Development Services: 1. Kcube Consultancy Services Private Limited 2. Ksolves India Limited 3. Toss, Technologies Limited 4. DCIS DOT COM Solutions India Private Limited

(d) Companies forming part of appellant's TP study contended to be excluded by the appellant: IT enabled Services: 1. Vitae International Accounting Services Private Limited 2. MOL Information Processing Services (India) Private Limited Software Development Services: 1. Great Software Laboratory Private Limited Although some of the Companies were chosen/ not chosen s comparables in the transfer pricing study, In case upon consideration of more details being available in public domain or subsequent decisions any of such companies if found to be comparable/ not comparable for any reasons appellant craves leave to urge the same at the time of hearing. 23. The learned TPO/ AO have erred, In law and in facts, by wrongly computing the operating margins of some of the comparable companies considered in the TP order 24. The learned AO / TPO /DRP have erred, in law and in facts, by not making suitable adjustment to account for

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differences in working capital position of the Appellant vis-a-vis the comparables. 25. The learned TPO/ AO /DRP have erred, in law and facts. by not making suitable adjustments to account for differences in the risk profile of the Appellant vis-a-vis the comparables. 26 The learned TPO/ AO /DRP have erred, in law and on facts, in not considering the business/ commercial expediencies of the arrangement and re-characterizing the delayed trade receivables realizations as a loan transaction, thereby computing transfer pricing adjustment in the form of interest Thereon. 27 Without prejudice to Ground No. 26, the learned AO/TPO/ ORP have erred, in law and in facts. by disregarding internal comparable data wherein the Assessee has neither charged interest for delay In collection of receivables from third- party customers nor paid any interest on outstanding payables to associated enterprises as well as third-party suppliers/ vendors. 28. Without prejudice to our above arguments, if outstanding receivables are considered as unsecured loans. benefit must be given of Circular dated 01.04.2020 through which Reserve Bank of India provides for a collection period of 9 months for export receivables which had been extended up to 15 months due to the COVID-19 pandemic. 29. Learned AO / TPO / DRP have erred, in law and facts, by not appreciating that the working capital adjustment undertaken by the Appellant in its Transfer Pricing documentation would take into consideration impact of credit period extended to the customers, and therefore, a separate analysis would not be required in respect of trade receivables 30. Without prejudice to our ground of appeal no 24 and 25 above, Learned DRP has erred, in law and facts, by arbitrarily directing the learned TPO to consider SBI short term fixed deposit Interest rate for computing notional interest to be charged on the trade receivables recharacterized as unsecured loans for the period of delay In realization

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Consequential Grounds 31 The Ld. AO has erred by Initiating penalty proceedings under section 270A r.w.s 274 of the Act, which is consequential in nature. 32. The Ld. AO has erred in computing interest erroneously under Section 234A. 234B and 234C of the Act while passing the final assessment order. 33. The Ld AO has erred in Issuing a demand notice under Section 156 of the Act. The Appellant submits that each of the above grounds is independent and without prejudice to one another. The Appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. so as to enable the Hon’ble Tribunal to decide on the appeal in accordance with the law. For the above and any other grounds which may be raised at the lime of hearing. it is prayed that necessary relief may be provided.”

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(i) In case of Software Development services where the international transaction is of Rs.70,43,96,133, assessee has disclosed the margin of 15% which was computed by the ld. TPO at 14.84%. The assessee selected 15 comparable companies on AceTP and Capitaline Databases stating that the international transactions of the assessee is at arm’s length. The ld. TPO challenged the filters and thereafter carried out a fresh search of 17 comparables whose 35th percentile margin was 20.62%, 65th percentile margin was30.15% and median margin was 24.3%. Based on this, after considering the show cause notice, the ld. TPO adopted the Transactional Net Margin Method [TNMM] as the most appropriate method computing the ALP of the international transaction at Rs.77,91,32,740 and thereafter made a shortfall adjustment of Rs.5,49,38,740.

(ii) With respect to ITeS, the assessee has worked out the margin of 13.57% on international transaction of Rs.346,99,91,658 and selected 13 comparables stating that it is at arm’s length. The ld. TPO after rejecting the comparables, filters, etc., carried out

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fresh search and based on that selected 17 comparables whose 35th percentile margin was 18.49%, 65th percentile margin was 32.28% and median margin was found at 23.71%, computing the ALP of Rs.402,04,01,910 and made a shortfall adjustment of Rs.55,04,10,242.

(iii) The assessee has supplied services to its AE. The ld. TPO found that there are huge delays in receiving the outstanding from its AE. The ld. TPO considered it to be a separate international transaction which was required to be benchmarked separately. He considered the outstanding beyond 90 days as per agreement as a transaction of capital financing. He imputed SBI PLR of 13.27% and computed the interest on foreign receivable of Rs.15,27,60,591. Based on this, the order of the ld. TPO was passed on 11.4.2023. Based on this, draft assessment order was passed on 29.9.2023 at a total income of Rs.206,55,73,090 wherein over and above the TP issue, several adjsutments/disallowances/additions were made.

(iv) The assessee filed objections before the ld. DRP, who passed directions u/s. 144C(5) of the Act on 19.6.2024. Based on those directions, OGE was passed on the TP issues by the ld. TPO on 4.7.2024.

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adjustment of Software Development services was retained of Rs.4,61,10,759 and ITeS segment of Rs.32,45,44,966 and interest on receivables of Rs.15,27,60,591. Based on this, assessment order was passed on 23.7.2024 wherein the total income of the assessee was determined at Rs.183,08,79,830. According to the final assessment order TP adjustments were retained at Rs.52,34,16,316 and non-TP disallowance/addition was retained at Rs.20,43,00937. Against this, the assessee is in appeal before us.

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therefore, the assessee is directed to produce the financial results for the relevant financial year of R Systems International Ltd. for comparability analysis. The ld. TPO may examine the same and if found correct, is directed to include R Systems International Ltd. as a comparable company. Accordingly ground No.16 of the appeal is allowed to that extent.

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consider the SBI PLR fixed deposit rate for computing the overdue interest. It was submitted before us that assessee’s invoices are prepared in US currency and European currency and therefore the computation of interest could not be made applying the SBI PLR. In para 17.2.2 the ld. TPO himself has stated that if the invoices have been raised in foreign currency, the interest rate is proposed to be charged by adopting the appropriate mark-up of prevailing LIBOR rate. As the claim of the assessee is that invoices are prepared in foreign currency, therefore adopting the SBI PLR for computation of the interest is not appropriate is acceptable. Accordingly we direct the ld. AO to compute the interest by adopting the appropriate rate on the LIBOR. Accordingly ground No.30 of the appeal is allowed.

Pronounced in the open court on this 28th day of January, 2026.

Sd/- Sd/-

( SOUNDARARAJAN K. ) ( PRASHANT MAHARISHI ) JUDICIAL MEMBER VICE PRESIDENT

Bangalore, Dated, the 28th January, 2026.

/Desai S Murthy /

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Copy to:

By order

Assistant Registrar ITAT, Bangalore.