ASSISTANT COMMISSIONER OF INCOME TAX, BENGALURU vs. ACI WORLDWIDE SOLUTIONS PRIVATE LIMITED, BENGALURU

PDF · subscribers
ITTPA 17/BANG/2025Status: DisposedITAT Bangalore25 June 202515 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the exclusion of seven comparable companies based on an upper turnover filter of Rs. 200 crore is justified. Following the decisions of coordinate benches in BORQS Software Solutions Pvt. Ltd. v. ITO and ANSR Global Corporation Pvt. Ltd. v. ACIT, the Tribunal directed the AO/TPO to apply the appropriate upper turnover filter and exclude companies with turnovers exceeding Rs. 200 crore. The Tribunal also directed the exclusion of Infobeans Technologies Ltd. and Inteq Software Pvt. Ltd. from the list of comparables, respectfully following the decision in M/s. AMD Software India Pvt. Ltd. v. ACIT and Global Logic India Pvt. Ltd. v. DCIT. Regarding the notional interest on trade receivables, the Tribunal accepted the assessee's argument. It noted that the assessee's trade payables to AEs were higher than trade receivables from AEs, and there was no dispute on the figures. Respectfully following the judgment in M/s Satyam Venture Engg. Services (P) Ltd., the Tribunal held that the charging of notional interest on delayed receivables does not arise in such circumstances and decided this issue in favour of the assessee. The appeal of the Revenue was dismissed, and the grounds raised by the assessee in the Cross Objection were allowed.

What were the facts?

The assessee, M/s. ACI Worldwide Solutions Pvt. Ltd., is engaged in software development, support, and distribution. For Assessment Year 2016-17, it filed its return of income, which was later revised. The case was selected for scrutiny, and notices under Section 143(2) and 142(1) were issued. International transactions with Associated Enterprises (AEs) led to a reference to the Transfer Pricing Officer (TPO). The TPO made an adjustment of Rs. 3,47,65,128, comprising Rs. 2,17,88,460 for Software Development Services and Rs. 1,29,66,668 for notional interest on receivables. The assessee did not file objections before the Dispute Resolution Panel. A final assessment order was passed, and penalty proceedings under Section 271(1)(c) were initiated. The assessee appealed to the CIT(A), and both the Revenue and the assessee filed appeals before the ITAT against the CIT(A)'s order.

What were the issues?

The Tribunal had to decide the following issues: 1. Whether the exclusion of seven comparable companies based on an upper turnover filter of Rs. 200 crore, as directed by the CIT(A), is justified, considering the assessee's software segment turnover of Rs. 35.72 crore. - Assessee's Contention: The learned counsel argued that the TPO wrongly applied a lower turnover filter of Rs. 1 crore but ignored the upper turnover limit. The assessee relied on coordinate bench decisions in M/s. Airlinq Technology Pvt. Ltd. and M/s. AMD Software India Pvt. Ltd. to exclude companies with turnovers exceeding Rs. 200 crore. - Revenue's Contention: The learned DR argued that turnover should not be a criterion for excluding companies if they are otherwise comparables. 2. Whether the addition of notional interest on delayed receivables is justified, given that the assessee has net trade payables to AEs which are higher than trade receivables from AEs. - Assessee's Contention: The learned counsel submitted that net receivables from AEs are negative (net payables) because purchases from AEs exceed services rendered to AEs. Charging notional interest would lead to base erosion. They relied on the judgment in M/s Satyam Venture Engg. Services (P) Ltd. where no notional interest was charged if trade payables to AEs exceeded trade receivables from AEs. - Revenue's Contention: The learned DR relied on the order of the AO/TPO and stated that the CIT(A) had wrongly decided this issue.

Which sections of the Income-tax Act were involved?

Section 92CA,Section 143(2),Section 142(1),Section 271(1)(c)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C” BENCH : BANGALORE

Before: SHRI. LAXMI PRASAD SAHU & SHRI. KESHAV DUBEY

For Appellant: Shri. Narendra Kumar Jain, Advocate
For Respondent: Shri. Parithivel, JCIT(DR)(ITAT), Bangalore
Hearing: 10.06.2025Pronounced: 25.06.2025

IN INCOME TAX APPELLATE TRIBUNAL “C” BENCH : BANGALORE BEFORE SHRI. LAXMI PRASAD SAHU, ACCOUNTANT MEMBER AND SHRI. KESHAV DUBEY, JUDICIAL MEMBER IT(TP)A No.17/Bang/2025 Assessment Year : 2016-17

ACIT, Vs. M/s. ACI Worldwide Solutions Pvt. Ltd., Circle – 1(1)(1), No.9, Salarpuria Cambridge Mall, Bangalore. Cambridge Road, Ulsoor, Bangalore - 560 008. PAN :AAACV 7566 R APPELLANT RESPONDENT

C.O.No.7/Bang/2025 (in IT(TP)A No.17/Bang/2025) Assessment Year : 2016-17

M/s. ACI Worldwide Solutions Private Limited, Vs. ACIT, No.9, Salarpuria Cambridge Mall, Cambridge Circle – 1(1)(1), Road, Ulsoor, Bangalore. Bangalore - 560 008. PAN :AAACV 7566 R APPELLANT RESPONDENT

Assessee by : Shri. Narendra Kumar Jain, Advocate Revenue by : Shri. Parithivel, JCIT(DR)(ITAT), Bangalore.

Date of hearing : 10.06.2025 Date of Pronouncement : 25.06.2025

ORDER Per Laxmi Prasad Sahu, Accountant Member :

This appeal filed by the Revenue and CO filed by the assessee are against the order passed by the ld.CIT(A), Bangalore, vide DIN and Order

IT(TP)A No.17/Bang/2025 C.O. No. 7/Bang/2025 (in IT(TP)A No.17/Bang/2025) Page 2 of 15 No.ITBA/APL/S/250/2024-25/1070029115(1) dated 29/10/2024 as per the following grounds:

Groundsraised by Revenue in IT(TP)A No.17/Bang/2024:

IT(TP)A No.17/Bang/2025 C.O. No. 7/Bang/2025 (in IT(TP)A No.17/Bang/2025) Page 3 of 15

Grounds raised by assessee in C.O.No.7/Bang/2025 :

IT(TP)A No.17/Bang/2025 C.O. No. 7/Bang/2025 (in IT(TP)A No.17/Bang/2025) Page 4 of 15

IT(TP)A No.17/Bang/2025 C.O. No. 7/Bang/2025 (in IT(TP)A No.17/Bang/2025) Page 5 of 15

2.

Briefly stated the facts of the case are that assessee is a private limited company engaged in the business of rendering software development and software support services to its Associated Enterprises (AE). It is also engaged in the business of software distribution activities wherein it purchases software from AE and sells the same to third parties in India. Assessee filed the return of income for the Assessment Year 2016-17 on 30.11.2016declaring income of Rs.12,87,92,000/-. Later a revised return was filed on 30.11.2017 & 08.01.2018

IT(TP)A No.17/Bang/2025 C.O. No. 7/Bang/2025 (in IT(TP)A No.17/Bang/2025) Page 6 of 15 declaring income of Rs. 13,99,39,380/. Subsequently, the case was selected for scrutiny through CASS and notice u/s 143(2) of the Income tax Act, 1961 dated 18.09.2017 was duly served to the assessee within the prescribed time. Consequent to the change in incumbent, a fresh notice u/s 142(1) r.w.s 129 of the Income tax Act, 1961 dated 09.08.2019 was issued and served to the assessee calling for details in connection with the return filed. After considering the detail submissions the draft Assessment Order was passed on 28.12.2019. proposing to addition s made

3.

During the F.Y. 2015-16, the assessee had international transactions with its Associated Enterprises. According to Section 92CA of the IT. Act, the case was referred to the Transfer Pricing Officer in order to determine the Arm's Length Price after obtaining necessary approval of the Hon'ble Commissioner of Income Tax, Bangalore-I, Bangalore, the Deputy Commissioner of Income-tax (Transfer Pricing) 1(1)(1), . Assessee has reported international transactions in respect of ‘Software Development Services’, ‘Distribution activity’ and ‘Sales representation on activity’.The TPO has passed order u/s 92CA of the I.T. Act, 1961 on 29.10.2019. In the order passed by the Deputy Commissioner of Income- tax (Transfer Pricing) - 1(1)(1) Bangalore, there was total adjustment made of Rs.3,47,65,128/- (Rs.2,17,88,460 towards ALP Adjustment and Rs.1,29,66,668 towards notional interest on receivables.) under the order passed u/s 92CA of the Act.n made u/s 92CA of the I.T. Act. After considering and in agreement with the views of the TPO with regard to TP adjustments, Rs. 3,47,65,128/- addition was made to the ALP during the period relevant to AY. 2016-17. The draft Assessment order u/s 144Cr.w.s92CA was passed on 28.12.2019. Vide assessee letter dated 24.01.2020, assessee has conveyed that they do not propose to file any objections before the Dispute Resolution Panel. Accordingly, final assessment order was passed and penalty proceedings were also initiated u/s 271(1)(c) of IT Act, 1981 for furnishing inaccurate particulars

IT(TP)A No.17/Bang/2025 C.O. No. 7/Bang/2025 (in IT(TP)A No.17/Bang/2025) Page 7 of 15 of income. Aggrieved by the final assessment order, the appellant filed the present appeal.

4.

TheTPO passed Order under section 92CA of the Act dated 29.10.2019 wherein total transfer pricing adjustment of Rs.3,47,65,128/- was made as under:

SI. No. Description Adjustment u/s 92CA (In Rs.)

SWD segment 2,17,98,460 1.

Interest On delayed 2. 1,29,66,668 receivables

Total adjustment u/s 92CA 3,47,65,128

5.

The learned Counsel submitted that the learned CIT(A) has rightly deleted the 9 comparable as selected by the TPO which are being functionally different. The learned TPO has applied lower turnover filter limit of Rs.1 Crore but ignored the upper turnover limit. The turnover of the assessee in software segment is Rs.35.72 Crores only and the Co-ordinate Bench of the Tribunal has decided in many cases the upper turnover limit of Rs.200 Crores which has not been followed by the learned TPO. In the following comparable companies, the turnover are as under:

Turnover (Rs. In Sl. No Name of the Comparable crore)

1 Larsen and Turbo Infotech Ltd. 5,569.52

IT(TP)A No.17/Bang/2025 C.O. No. 7/Bang/2025 (in IT(TP)A No.17/Bang/2025) Page 8 of 15

2 Nihilent Ltd 258.07

3 Persistent Systems Ltd 1,527.78

Thirdware Solutions Ltd 221.36 4

5 Infosys Ltd 56,992

6 Aspire Systems (India) Pvt Ltd 233.05

753.48 7 Cybage Software Pvt Ltd

6.

In support of his arguments, he relied on the judgment of M/s.Airlinq Technology Pvt. Ltd., Vs. DCIT in IT(TP)A No.231/Bang/2021 for Assessment Year 2016-17 in which all the companies having turnover of more than Rs.200 Crores are excluded. Further, in respect of rest of the 2 comparables Infobean Technologies Ltd., and Inteq Software Pvt. Ltd., these 2 companies have been excluded in the case of M/s. AMD Software India Pvt. Ltd., Vs. ACIT.

7.

On the other hand, the learned DR relied on the Order of AO/TPO and further submitted that the turnover should not be considered as criteria for excluding the companies if the companies are otherwise comparables.

8.

Considering the rival submissions and perusing the Order of lower authorities, we noted that the assessee company is engaged in providing software development services to its AEs and the turnover is Rs.35.72 Crores in the software segment. The AO/TPO has not followed the above turnover limit for companies and considered as comparables. On similar facts, the Co-ordinate Bench noted supra in has held as under:

IT(TP)A No.17/Bang/2025 C.O. No. 7/Bang/2025 (in IT(TP)A No.17/Bang/2025) Page 9 of 15 10. We have heard rival submissions and perused the material on record. The Bangalore Bench of the Tribunal in the case of BORQS Software Solutions Pvt. Ltd. v. ITO (supra) has considered a host of rulings on this issue including that of the High Courts wherein divergent views were taken with respect to the application of different filters. It was held by the Tribunal that the application of the turnover filter is justified on the basis of the classification of companies as per the report of Dun and Bradstreet. Similarly, the Tribunal, in the case of ANSR Global Corporation Pvt. Ltd. v. ACIT (supra) directed the application of a higher turnover filter to exclude companies with a turnover of more than Rs.200 crore. Since the assessee in the present case has a turnover of Rs.20.06 crore, companies reporting turnover above a threshold are not considered comparable. Accordingly, by following the above orders of the Tribunal, we direct the AO / TPO to apply the appropriate upper turnover filter and consider exclusion of the above seven companies having turnover in excess of Rs.200 crore. These grounds are accordingly allowed.

9.

Respectfully following the above judgment, we are also directing to delete the above 7 companies selected by the AO/TPO from the list of comparables. Accordingly, the grounds raised on this point are allowed.

10.

Further, in case of Infobeans Technologies Ltd., the learned Counsel submitted that this company is functionally different and we also noted that the case law relied on by the learned Counsel in the case of AMD India Pvt. Ltd., Vs. ACIT noted supra, this company has been excluded observing as under:

“Infobeans Technologies Ltd. (Infobeans) 49. The assessee sought exclusion of Infobeans on the ground that it is also functionally dissimilar being into providing business IT services (CAD) (application development and maintenance, Big Data, UX and UI, Automation engineering services, including product engineering and lifestyle solutions and business process management) in verticals of storage and virtualization, media and publishing, HR and Payroll and e-commerce. It is also providing software engineering services primarily in Custom Application Development (CAM), enterprise mobility and Big Data Analytics (BDA). 50. Perusal of financials available at page A303, A418 to A421, Infobeans shows that it is into diversified services but its segmental financials are not available without which it is difficult to compute the

IT(TP)A No.17/Bang/2025 C.O. No. 7/Bang/2025 (in IT(TP)A No.17/Bang/2025) Page 10 of 15 correct profit margin of the relevant segment. So Infobeans is also ordered to be excluded as a comparable being not a comparable to the assessee.” 17.10 Perusal of the annual report, filed before us in respect of the above two comparables, we note that the segmental financials are not available in respect of Nihilent and Infobeans and the RPT in respect of Aspire Systems India Pvt. Ltd. is more than 25% being the threshold limit considered by the Ld.TPO. Nothing has been placed before us by the Ld.DR in order to take a different view. Respectfully following the Hon’ble Mumbai Tribunal, we direct the Ld.TPO to exclude Nihilent, Infobeans and Aspire Systems from the final set.” 12.8 Respectfully following the above decision of the coordinate Bench, we direct exclusion of Nihilent, Infobeans, Thirdware Solutions Ltd. and Aspire Systems (India) P. Ltd. from the comparables……………………………

11.

Respectfully following the above judgement we direct to the AO/TPO for exclusion of this company.

12.

Further in the case of Inteq Software Pvt. Ltd., the assessee has relied on the judgement of co-ordinate bench in the case of AMD India Pvt. Ltd., Vs. ACIT it has been observed that is functionally different and has substantial intangibles. In the above judgment, it has been held as under:-

“Inteq Software Ltd. 13. The ld. AR submitted that Inteq Software Ltd. is functionally different as it is engaged in both rendering software services & developing software products. The Company owns substantial intangibles and cannot be compared to the assessee. The Company has substantial RPT transaction for FY 13-14 (79.45%). It was further submitted that despite directions by DRP to exclude FY 13-14 for PLI computation, the TPO has considered all the 3 years. Therefore this company has to be excluded from the comparables list. 13.1 The ld. DR relied on the orders of lower authorities. 13.2 We have heard both the sides and perused the material on record. On going through the submissions made before the lower authorities which is placed at page 1039, para 6.103, the assessee submitted as under:- “The Assessee submits that this company is functionally different as it is engaged in both rendering software services and developing software products. Further, it

IT(TP)A No.17/Bang/2025 C.O. No. 7/Bang/2025 (in IT(TP)A No.17/Bang/2025) Page 11 of 15 provides wide range of services such as Application Development, Application Migration, Application Maintenance, Oracle Application, Microsoft Dynamics, Data Warehousing, EI & EDI Services, Consulting Services, Healthcare BPO. These are evident from company’s website which is reproduced below.” 13.3 On going through the financial statements produced at PB pg. 1559, under the head revenue from operations, the assessee has shown revenue from operations under the accounting head, Software Development & Service Charges of Rs.17.38 crores and at PB pg. 1557 in Form No.NGT-9 which is annual return, the assessee has shown software development services under NIC Code “620-Computer Programming, Consultancy and related activities”. This company has been excluded in the case of Finastra Software Solutions (India) P. Ltd. v. DCIT, AY 2016-17 [2023] 147 taxmann.com 515 (Bengaluru Trib) by observing as under:- 18.The assessee sought for exclusion of Inteq Software Pvt. Ltd. and Infobeans Technologies Ltd. on the basis that these companies are functionally dissimilar to the assessee. In this regard the learned A.R. submitted that Inteq Software Pvt. Ltd. ("Inteq") The company is functionally dissimilar to the assessee. The company is engaged in diversified business lines such as Microsoft dynamics, data warehousing, EI & EDI services, Healthcare BPO and consulting services including provision of end-to-end solutions to clients in the nature of back office services, transaction-based services, MIS and analytical reporting services. Thus, Inteq is not comparable to the software development functions of the assessee. It is further submitted that the segmental details attributable to the various services rendered by the company is not available and is instead shown as "software development and service charges" under one head. Detailed submissions are available at pages 1911-1914 of the paper book. Significant related party transactions: The company's related party transactions (sales) for the FY 2013-14 stand at 79.49% of sales, and therefore the company ought to be excluded. Wide fluctuation in the margin: It is submitted that the company's margin fluctuate widely, suggesting that there exists a peculiar economic circumstance. For the FY 2013-14, the company's margin stood at 47.21%, for the FY 2014-15 32.14% and for the FY 2015-16 7.56%. Detailed submissions in this regard are placed at pages 419-436 of the paper book. In view of the above, it is submitted that Inteq ought to be excluded from the final list of comparables. ******** 21. We have heard the rival contentions and perused the material on record. We notice that the coordinate bench in the case of NTT Data FA Insurance Systems (India) (P.) Ltd. (supra) has considered the issue of exclusion of Inteq Software Pvt. Ltd. and Infobeans Technologies Ltd. and held as under:- '18. We have heard the rival submissions and perused the materials available on record. In our opinion, this comparable was considered by the Hyderabad Tribunal

IT(TP)A No.17/Bang/2025 C.O. No. 7/Bang/2025 (in IT(TP)A No.17/Bang/2025) Page 12 of 15 in the case of ADP Pvt. Ltd. in ITA No. 227 & 228/Hyd/2021 dated 3-2-2022 at para 7 page 3678 to 3680 wherein held as under:- ******** ********

21.

We have heard the rival submissions and perused the materials available on record. This comparable has considered in the case of Global Logic India Pvt. Ltd. v. DCIT (2022) 134 Taxmann.com 35 for the assessment year 2016-17, wherein held as under:- 46. "The taxpayer sought exclusion of Inteq again on account of functional dissimilarity being into providing outsourced product development services and Healthcare BPO services to its customers as per website extracted at pages 83 to 85 of the appeal memo set. It being a private limited company its financials are not available in the public domain. Its annual report made available at pages 848 to 909 of the annual reports paper book does not provide segmental profitability earned from software development services, outsourced product development services and Healthcare BPO services. 47. When we examine profit & loss account at page 873 of the annual report paper book, software development and service charges are shown in composite manner with no segmental profitability. In these circumstances, we are of the considered view that Inteq is not a suitable comparable vis-avis the taxpayer which is a routine software development service provider working on costplusmark up model, hence ordered to be excluded from the final set of comparables." 21.1 In view of the above order of the Tribunal, we direct the AO/TPO to exclude this company from the list of comparables.' 22. Respectfully following the decision of the coordinate bench we hold that Inteq Software Pvt. Ltd and Infobeans Technologies Ltd., be excluded from the list of comparables.” IT(TP)A Nos. 238/Bang/2021 & 262/Bang/2022 Page 35 of 133 13.4 Respectfully following the above decision of the Tribunal, we direct exclusion of Inteq Software Pvt. Ltd. from the comparables.” 13. Respectfully following the above judgment, we direct the AO/TPO to exclude this company from the list of comparables also.

14.

Notional Interest on trade receivables: Ground Nos.18 and 19 in Revenue’s appeal and Ground Nos.4 and 5 of CO.

IT(TP)A No.17/Bang/2025 C.O. No. 7/Bang/2025 (in IT(TP)A No.17/Bang/2025) Page 13 of 15 The learned Counsel submitted that the learned AO/TPO have wrongly calculated the national interest on receivables. The net receivables are less than the trade payabls to AEs. In this regard, he has provided the chart

Particulars 31.03.2016 31.03.2015 3,81,59,215 8,59,69,577 Receivables from AEs (A) 40,67,48,086 17,39,47,655 Receivables from Non-AEs (B) Trade receivables (as per 44,49,07,301 25,99,17,232 financials) 12,01,88,894 Payable due to AEs (C) 4,19,93,426 4,17,43,603 1,64,18,593 Payable due to Non-AEs (D) Trade Payables (as per 13,66,07,487 8,37,37,030 financials) Net receivables from AE [A - Cl (38,34,212) (3,42,19,317)

15.

The learned Counsel submitted that it has net trade payable position to AEs. This is for the reason that theassessee's purchase with AEs is higher when compared services rendered to AEs. Thus, it is submitted that question of computing the notional interest on delayed receivables does not arise and addition proposed by the TPO should be deleted on this count itself.The learned Counsel submits that if the interest is charged in such circumstances, the interest payable to AE will be more than the interest receivable from the AE as payables to the AE are more. This will lead to base erosion in India. It is also submitted that the terms of payment for the both the Agreements are same. Underlying transactions are on Revenue account. It is submitted that in the real world, no party can expect interest on its receivables, if the amount payable to same party is higher. Thus, the addition made by the TPO is without appreciating the basic facts and underlying business realities. Thus, based on the internal comparables, the addition of notional interest on receivables should be deleted.

IT(TP)A No.17/Bang/2025 C.O. No. 7/Bang/2025 (in IT(TP)A No.17/Bang/2025) Page 14 of 15 16. In support of his arguments, he relied on the judgment of the Co-ordinate Bench in the case of M/s Satyam Venture Engg. Services (P) Ltd. [2016]69 taxmann.com 165 (Hyderabad- Trib.), wherein the bench has held that no notional interest will be charged if trade payables to AES is more than the trade receivables from AEs.

17.

Learned DR relied on the Order of the AO/TPO and stated that the CIT(A) has wrongly decided this issue.

18.

Considering the arguments advanced from both the sides and perusing the entire material on record and Orders of authorities below, we noted that in this case, the trade pay bills to the AEs are more than the trade receivables from AEs. There is no dispute on the figures reported. Therefore, respectfully following the above judgment noted supra, we accept the arguments advanced by the learned Counsel in the judgment cited by the learned Counsel in which it has been held as under:

"18. We have heard the arguments of both the parties and perused the material on record as well as the orders of revenue authorities. From the above, it may be perceived that assessee has not charged any interest to AE as well as non-AE entities. Moreover, the TPO has considered only the account receivable of AE without considering the account payable to AEs. It is pertinent to note that account payable to AE and its affiliates are Rs. 28,58,98,204 compared to account receivables from AE and its affiliates of Rs. 26,88,97,856. We find that the account payables are more than the account receivables from AE. Hence, charging of notional interest does not arise.”

19.

Respectfully following the above judgment, we are deciding this issue in favour of the assessee.

IT(TP)A No.17/Bang/2025 C.O. No. 7/Bang/2025 (in IT(TP)A No.17/Bang/2025) Page 15 of 15 20. In result, the appeal of the Revenue is dismissed and grounds raised by the assessee in CO are allowed.

Pronounced in the court on the date mentioned on the caption page. Sd/- Sd/- (KESHAV DUBEY) (LAXMI PRASAD SAHU) Judicial Member Accountant Member Bangalore, Dated : 25.06.2025. /NS/* Copy to: 1. Appellant 2. Respondent 3. Pr.CIT4.CIT(A) 5. DR, ITAT, Bangalore.

By order

Assistant Registrar ITAT, Bangalore.

More judgments on Section 92CA

All 3,978 judgments and leading authorities on Section 92CA →

Recent GST High Court judgments

Search GST case law →