NTT DATA GLOBAL DELIVERY SERVICES PVT LTD,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-5(1)(1), BANGALORE

The ground Nos. 1 to 9 of the revised grounds of appeal pertain to TP adjustment made in relation to international transaction with the US based AE.

At the outset, we note that these grounds have been withdrawn vide order sheet entry dated 15th September 2025 in pursuance to Mutual Agreement Procedure (MAP) resolution dated 7th May 2025. 5. The ground Nos. 10 to 14 of the revised grounds of appeal pertain to TP adjustment made in relation to international transaction with the non-US based AE.

At the outset, we note that the assessee, through the learned AR submitted to keep this issue open. Hence, we are not adjudicating the same.

The ground No. 15 of the revised ground of appeal pertains to the inclusion and exclusion of comparables.

However, TPO computed the PLI of the assessee at 14.54%. Further, the TPO rejected 21 comparables companies out of 26 selected by the assessee company. The remaining 5 companies which were accepted by the TPO are detailed as under: 1. CG-VAK Software & Export Ltd 2. Larsen & Turbo Infotech Ltd 3. Mindtree Ltd 4. Persistent Systems Ltd 5. R S Software. 10. Besides above the TPO selected two additional comparable companies which are as under: 1. ICRA Techno Analytics Ltd 2. Tech Mahindra Ltd 11. Thus, the AO finally selected a set of 7 comparables companies and computed PLI of such comparables at 20.90% and accordingly upward adjustment was proposed by the TPO which was adopted by the AO in the draft assessment order.

The aggrieved assessee preferred to file objection before the learned DRP.

The assessee before the learned DRP submitted that the comparable companies being: 1. ICRA Techno Analytics Ltd 2. Persistent Systems Ltd 3. Tech Mahindra Ltd should be excluded from the set of comparable as their comparability criteria are unreasonable. The assessee submitted that the functional profile of M/s ICRA Techno Analytics Ltd has undergone change w.e.f. F.Y. 2011-12 due to merger. Hence, the same is functionally different and not comparable. Similarly, M/s Tech Mahindra Ltd is also functionally different as the impugned company is operating into multiple segments, and segmental details are not available.

1 Regarding M/s Persistent Systems Ltd, the assessee argued that the impugned company has several intangible properties, so it is an inappropriate comparable. Similarly, the impugned company is engaged in product development, so it is functionally different. Besides, this company has incurred substantial expenses on R & D. Further the impugned company has substantial onsite revenue and having foreign currency expenditure which amounts to around 13.72% of the Revenue whereas assessee is captive service provider. They have also substantially high related party transaction. Accordingly, the assessee prayed to the learned DRP to exclude the company i.e. M/s Persistent Systems Ltd from the comparables.

2 The assessee also requested the learned DRP to include certain companies as comparables which are detailed as under: 1. Akshay Software Technology 2. Cigniti Technologies Ltd 3. Evoke Technologies Pvt Ltd 4. Calibar Point Business Solutions Limited 5. CAT Technologies Ltd 6. Helios & Mathehson Information Technologies Ltd 7. R Systems International Ltd 8. Sasken Communication Technologies Ltd 9. Thinksoft Global Services Ltd, etc 13.3 The learned DRP after due consideration accepted the assessee’s contention with respect to the exclusion of M/s ICRA Techno Analytics Ltd and M/s Tech Mahindra Ltd from the list of comparables and directed the TPO to exclude the same.

4 However, the learned DRP rejected the assessee’s contention for the exclusion of M/s Persistent Systems Ltd from the comparable. The learned panel observed that the assessee first argued that Persistent Systems owns several intangibles and therefore should not be considered comparable. The ld. DRP noted that the assessee did not bring any material to contradict the findings of the TPO. On examining the annual report of Persistent Systems, the ld. DRP observed that the intangible assets mainly represent software license purchased and contractual rights acquired, which are valued based on purchase price. There is no indication of self-generated intangibles. These assets, like

5 The assessee then argued that Persistent Systems is a software product company and is functionally different. The ld. DRP rejected this argument as well. After checking the annual report and the TPO’s discussion, the ld. DRP found that Persistent Systems is engaged in software development for its customers, and the group also performs software development for its associated enterprises. The revenue is earned mainly from software services, either on a fixed-price or time- and-material basis. Although, the company uses terms such as “product life cycle services”, “technology innovation”, and “software products”, the financial statements clearly show that income is recognized from software services. Thus, the ld. DRP concluded that the company is also providing development services just like the assessee and therefore remains functionally comparable.

6 The assessee further argued that the company incurs substantial Research & Development expenditure. The ld. DRP examined this and found that the R&D expenditure of Persistent Systems is less than 0.35% of its operating expenditure. Thus, the ld. DRP held that the assessee’s claim is exaggerated and unsupported by evidence. Therefore, this objection was also rejected.

7 The assessee also claimed that Persistent Systems has substantial onsite revenue and foreign exchange expenditure. The ld. DRP noted that the foreign currency expenditure is around 13.72% of revenue, which does not make the company incomparable. The ld. DRP relied on ITA No.1720 & 2062/Bang/2017

After considering all arguments, the ld. DRP held that Persistent Systems Ltd. is functionally similar, operates in the same broad area of software development, and meets the comparability criteria under TNMM. Therefore, the assessee's application for the exclusion of the company was declined.

1 The learned DRP also rejected the assessee request for inclusion of certain companies in the list of comparables. The ld. DRP examined each company that the assessee wanted to include in the list of comparables.

2 For Akshay Software Technologies Ltd., the ld. DRP noted that the company is engaged in professional services, procurement, installation, implementation, support and maintenance of ERP products. These activities include multiple types of support functions, and the annual report does not provide any clear data showing software development as the main activity. The revenue recognition policy also refers to services, maintenance contracts and sale of software licenses. No segmental data is available to confirm that software development alone is the primary business. Since the company operates in several service segments and proper segmental results are not available, it ITA No.1720 & 2062/Bang/2017

3 For Cigniti Technologies Ltd., the learned DRP agreed with the TPO that the company is engaged primarily in software testing, validation and verification services. It does not undertake software development activities, because testing is only one part of the software development cycle and cannot be equated with development services. The ld. DRP relied on ITAT decisions which held that software testing companies are not comparable with software development companies. Since Cigniti is functionally different, the learned DRP rejected its inclusion.

4 For Evoke Technologies Ltd., the learned DRP observed inconsistencies in the export earnings disclosed in various parts of the annual report. The figures in the director’s report, notes to accounts and balance sheet did not match. Due to the contradictory information and lack of reliable export data, the company could not be considered as a proper comparable. Therefore, the objection was rejected.

5 For Caliber Point Business Solutions Ltd., the learned DRP found that the financial data for the relevant financial year was not available in the public domain during the TP proceedings. The assessee did not provide evidence to show that the annual report was available when the TPO carried out the analysis. The ld. DRP also held that financial information becoming available at a later stage cannot be considered, as this would make ALP determination a never-ending exercise. Therefore, the company could not be included.

6 For Helios & Matheson Information Technologies Ltd., the learned DRP found that the company failed the export earnings filter and had a different financial year ending. The ld. DRP held that companies must have the same financial year ending as required under the Act for contemporaneous data. Because these conditions were not satisfied, the company could not be included.

7 For R Systems International Ltd., the learned DRP held that the company follows a different financial year ending of 31st December. Using data from two different financial years is not acceptable because economic conditions may vary. Since, the relevant data was also unavailable during the TP proceedings, the ld. DRP rejected its inclusion.

8 For Sasken Communication Technologies Ltd., the learned DRP found that the company operates in multiple business segments, including research and development consultancy, wireless software products, and software services. The segmental details for these separate business lines were not fully available. Since the company is involved in diversified activities and not limited to software development, and proper segmental data is missing, it was held to be not comparable.

9 For Thinksoft Global Services Ltd., the learned DRP noted that the company failed the RPT filter of 25%. Further, the company is engaged only in software testing and validation services, which is functionally different from software development. As such, it cannot be considered comparable and the request for inclusion was rejected.

Being aggrieved by the direction of the learned DRP and consequent assessment order, the assessee is in appeal before us.

Before us the learned AR of the assessee submitted that M/s Persistent Systems Ltd. is not comparable to the assessee because it is engaged in a completely different line of business. The company is a full- fledged outsourced product development and technology innovation company, offering end-to-end product lifecycle services. It carries out activities such as designing complete software products, creating and enhancing intellectual property, and developing technology platforms. The company also earns royalty and licensing income from the sale of software products. These activities are not performed by the assessee, which is only a captive software development service provider rendering routine services to its AE on a cost-plus basis.

1 The ld. AR further pointed out that no proper segmental information is available in the annual report of Persistent Systems Ltd. The revenue from software services, software products, licensing, and innovation-related activities are all merged. Due to lack of break-up between product revenues and service revenues, it is impossible to ITA No.1720 & 2062/Bang/2017

2 The ld. AR also emphasised that Persistent Systems has a strong IP-led business model. The company has consistently expanded its intellectual property portfolio and invested heavily in R&D. During the relevant year, it acquired new technologies such as 'rCloud' and entered into a strategic agreement with HP for licensing automation software. It has also acquired IBM’s TNPM product roadmap under a long-term multi- year deal, strengthening its position in IP-driven product development. These features demonstrate that Persistent Systems operates as a high- risk, IP-creating company, whereas the assessee bears no IP risk and performs only low-risk, routine development functions.

3 The ld. AR submitted that the company’s annual report itself highlights “continuous growth in IP-led business” throughout the year. This alone shows that the business model of Persistent Systems is fundamentally different from that of the assessee. A company engaged in creation, ownership and exploitation of intellectual property cannot be compared with a captive service provider that does not develop or own any IP.

4 The ld. AR argued that the presence of significant intangibles, R&D activities, IP ownership, licensing income and product-based operations make Persistent Systems functionally incomparable. The assessee does not carry out any of these functions nor does it assume

5 In support of exclusion, the learned AR also relied on judicial precedents such as decision of this tribunal in the case of the CSG Systems International (India) Pvt Ltd reported in TS-784-ITAT-2019 and TS-14-ITAT-2021 and also places reliance on the decision of Hyderabad ITAT in case of EPAM Systems India Pvt Ltd in ITA No. 2122/Hyd/2017. 16.6 The learned AR further submitted that the following companies should be included in the comparable list.

Akshay Software Technologies Ltd.

7 The learned AR submitted that Akshay Software Technologies Ltd. is a valid comparable because the company is engaged in IT and IT- enabled software development services, which is the same line of activity as the assessee. The company’s own reply to notice under section 133(6) confirms that it is involved in software-related services and development work. The ld. AR pointed out that software service income constitutes 99.45% of the total revenue for the relevant year, which shows that the company is predominantly a software service provider and not a product company. The export earnings from software services account for 94% of the operating revenue, demonstrating that Akshay Software satisfies the export filter used by the TPO. The ld. AR argued that the company passes all quantitative filters applied by the TPO, including turnover, employee cost, and service income filters. In ITA No.1720 & 2062/Bang/2017

Cigniti Technologies Ltd.

8 The AR argued that Cigniti Technologies Ltd. is also a suitable comparable because it is engaged in computer programming, consultancy services and software services, which fall within the broader field of software development. Cigniti’s financials show that 100% of its revenue is from software-related services during the relevant year. The export earnings from software services constitute 98.36% of total revenue, clearly satisfying the export revenue filter. The ld. AR submitted that the TPO rejected this company only on the grounds that it performs software testing; however, software testing is an integral part of the software development life cycle. It cannot be separated from development activities and is routinely performed by companies providing development services. Therefore, the functional profile of Cigniti cannot be considered different. The ld. AR supported the inclusion by relying on judicial precedents such as NXP India Pvt. Ltd. in IT(TP) No. 692/ & 2861/Bang/2017, where Cigniti has been accepted as a comparable. The ld. AR argued that since the company passes all filters and performs essential software development–related functions, it should be included.

Evoke Technologies Pvt. Ltd.

9 With respect to Evoke Technologies, the ld. AR submitted that the company is engaged exclusively in software development services, as evident from its annual report. Export earnings constitute 99.98% of the total operating revenue, and software development services account for 100% of revenue, which meets every filter adopted by the TPO. The TPO rejected this company only on the ground that certain data was not available in the public domain; however, the ld. AR clarified that upon review of database such as MCA, complete financial information was indeed available. The ld. AR submitted that the TPO has not demonstrated any functional difference or any failure of quantitative filters. Since Evoke Technologies Pvt. Ltd. is a pure software development service provider operating under conditions identical to the assessee, and since data is reliably available, it should be included as a comparable. The ld. AR further relied on judicial precedents including Mercedes Benz Research & Development India Pvt. Ltd. (IT(TP)A No. 1497/Bang/2017) supporting inclusion of companies engaged in similar software development activities.

10 The learned AR concluded that all three companies viz Akshay Software Technologies Ltd., Cigniti Technologies Ltd. and Evoke Technologies Pvt. Ltd. are functionally similar to a captive software development service provider like the assessee. They satisfy all filters applied by the TPO, are engaged in software development or closely related services, and have been accepted as comparables in various judicial decisions. Therefore, their inclusion is justified and necessary for a fair and balanced determination of the arm’s length price.

We have heard the rival contentions of both the parties and perused the materials available on record. The facts of the case have been elaborated in the preceding paragraph which are not in dispute, therefore for the sake of brevity and convenience, we are not inclined to repeat the same. Controversy before us is limited to exclusion and inclusion of certain comparables companies. First, we will address the dispute over excluding M/s Persistent Systems Limited as a comparable company.

1 In this regard first, we note that the assessee is a captive software development service provider. It operates on a cost-plus model and assumes only limited risks. It performs routine development activities for its associated enterprise. The business model is low-risk and without ownership of any intellectual property.

2 On the other hand, the materials placed before us clearly show that Persistent Systems Ltd operates in a completely different functional environment. The company is engaged in full-fledged outsourced product development, technology innovation, and end-to-end product life-cycle services. It develops products, creates and enhances IP, designs technology platforms, and earns licensing / royalty income. These activities are not comparable to the assessee’s restricted functions.

4 Third, no segmental information is available in the financial statements of Persistent Systems. The revenues from software services, product sales, licensing, R&D-driven activities and platform development are all combined. Without segmental break-up, it is impossible to isolate margins attributable to pure software development services. In transfer pricing, a functionally diversified company without segmental accounts cannot be compared with a single-segment captive service provider.

5 Fourth, although the ld. DRP rejected arguments relating to intangibles and R&D on the ground of low percentages, we note that the existence of intangibles and the nature of activities are more important than the quantum of R&D spent. The company’s model itself revolves around constant creation, ownership and exploitation of IP, which places it in an entirely different economic position. The assessee does not own or develop IP and therefore cannot be benchmarked against such an entity.

6 Further, we found that in identical facts and circumstances the coordinate bench of Hyderabad ITAT in case of EPAM Systems India Pvt

7 Considering all these aspects functional differences, presence of IP, product-based revenues, lack of segmental data, risk profile mismatch, and supporting judicial precedents we hold that Persistent Systems Ltd fails the test of comparability. Accordingly, we direct the exclusion of M/s Persistent Systems Ltd from the list of comparables.

8 Now moving ahead to dispute regarding the inclusion of the certain companies namely Akshay Software Technologies Ltd., Cigniti Technologies Ltd., and Evoke Technologies Pvt. Ltd as comparables.

9 Regarding the Akshay Software Technologies Ltd, we note that the learned DRP rejected this company on the ground that the annual report contained references to multiple service segments such as procurement, installation, implementation, and maintenance of ERP products, and that segmental data was not clearly available. However, the assessee has placed on record convincing material to demonstrate that software service income constitutes 99.45% of the company’s total revenue. This is supported by the company’s own response to the notice

10 We also note that the export earnings constitute 94% of the operating revenue, which satisfies the export revenue filter applied by the TPO. The company also passes the turnover, employee-cost, and service-income filters. No evidence has been brought by the Revenue to contradict these factual assertions. When the company’s financials show predominantly software development service income and it satisfies all quantitative filters, denial of inclusion merely because it provides ancillary support services is not justified.

11 Further, judicial precedents such as NXP India Pvt Ltd (IT(TP)A Nos. 692 & 2861/Bang/2017) have accepted Akshay Software Technologies Ltd. as a valid comparable for software development service providers. The relevant finding of the Tribunal in case of NXP India Pvt Ltd reads as under: 32. It was rejected by the TPO for the reason that the function of this company appears to be more in the nature of support services and I.T. enabled services. However, this company is engaged in providing professional services, implementation, support and maintenance of ERP products and other services. These are nothing but software development services, as is evident from Notes forming part of the financial statement, which is placed at paper book page No.1825. Further, the revenue from software services accounts for 99.45% of the total revenue of the company as evident from the financial statement placed on record at paper book page No.1831. Being so, we direct the TPO to consider this company as comparable to the assessee’s case while selecting the comparables.

12 We therefore hold that Akshay Software Technologies Ltd. is functionally comparable to the assessee and should be included.

14 The assessee has demonstrated that 100% of Cigniti’s revenue is from software-related services, and 98.36% of its revenue comes from software service exports. The company thus satisfies all the quantitative filters accepted by the TPO.

15 The learned AR also relied on judicial decisions such as NXP India Pvt. Ltd. (supra), where Cigniti Technologies Ltd. was found to be a valid comparable for a captive software development service provider. These rulings recognize that software testing falls within the broader domain of software development services. The relevant findings of the Tribunal are read as follows: 34.This company was rejected by the TPO for the reason that this company was engaged in software testing service. This company is also into computer programming, consultancy and related activities. According to the TPO, it was functionally different from assessee-company. As seen from the revenue from operations, which is as follows:- 34.1 In our opinion, software testing is a part of software development life cycle and being so, this company should be considered as a comparable. Accordingly, we direct the TPO to include Cigniti Technologies Limited as a comparable to the assessee-company, while selecting the comparables.

17 Coming to the issue of inclusion of Evoke Technologies Pvt. Ltd. to the list of comparables. The ld. DRP rejected this company solely due to certain inconsistencies in export earnings disclosed in different parts of the annual report. The assessee has explained that complete financial information is available from reliable public-domain sources such as MCA, and that the company is engaged exclusively in software development services.

18 The financials show that export earnings constitute 99.98% of operating revenue, and 100% of the company’s revenue is from software development services. These facts demonstrate that the company passes every filter applied by the TPO, including turnover and export filters.

19 Importantly, the learned DRP has not identified any functional difference between this company and the assessee. The rejection is based only on perceived inconsistencies, which stand adequately clarified by the assessee. When reliable financial data is available and the company is engaged purely in software development services, its exclusion leads to an incomplete comparability set.

20 The AR has also relied on decisions such as Mercedes Benz Research & Development India Pvt. Ltd. (IT(TP)A No. 150/Bang/2016) involving A.Y. 2011-12, where Evoke Technologies was accepted as a ITA No.1720 & 2062/Bang/2017

21 Regarding the other companies namely Calibar Point Business Solutions Limited, CAT Technologies Ltd, Helios & Mathehson Information Technologies Ltd, R Systems International Ltd, Sasken Communication Technologies Ltd and Thinksoft Global Services Ltd which were taken as comparable by the assessee but rejected by the TPO and learned DRP, we find that the learned AR of the assessee has not pressed the issue of inclusion of these companies to the list of comparable. Hence, we dismiss the same as not pressed. In view of the above detailed discussion, the ground of appeal raised by the assessee is hereby partly allowed.

The revised Ground Nos. 16 & 17 of the assessee’s appeal pertains to the computation of operating margins of comparables companies and exercising power under section 133(6) of the Act.

The assessee, via learned AR, requested to keep the issue open. Hence, we are not adjudicating the same.

The revised Ground No. 18 of the assessee’s appeal pertains to not making necessary adjustment on risk profile.

The assessee, via learned AR, requested to keep the issue open. Hence, we are not adjudicating the same.

At the outset, we note that the assessee through learned AR submitted that the grounds relating to corporate issues are not pressed. Hence, we dismiss the same as not pressed.

The revised Ground No. 20 of the assessee’s appeal is that the AO erred in not providing the credit under section 90 of the Act for Rs. 2,15,29,619/- only.

We have considered the submissions of the assessee. The grievance of the assessee is that the AO has not granted foreign tax credit under section 90 of the Act to the extent of Rs. 2,15,29,619/-.

1 The availability of foreign tax credit is a matter of fact and depends on supporting documents such as tax withholding certificates, proof of foreign income offered to tax in India, and compliance with Rule 128 of the Income-tax Rules.

2 In our view, the issue requires proper verification by the AO. The assessee must be given an opportunity to furnish all relevant evidence in support of its claim. Accordingly, we set aside this issue to the file of the AO. The AO is directed to verify all supporting documents, including Form 67, foreign tax payment proofs, and corresponding income offered to tax, and thereafter allow the foreign tax credit strictly in accordance with section 90 of the Act and Rule 128 of the Income Tax Rule. The assessee shall cooperate and provide all required details. The AO shall ITA No.1720 & 2062/Bang/2017

The revised Ground Nos. 21 and 22 of the assessee’s appeal pertain to levy of interest under section 234B of the Act and initiation of penalty proceeding under section 272(1)(c) of the Act. The issues raised in these grounds are either consequential or premature to decide. Hence, we dismiss the same as infructuous.

In the result, the appeal of the assessee is hereby partly allowed for statistical purposes.

The assessee vide submission dated 7th November 2025 has filed revised grounds of appeal. As per the revised grounds, the assessee has raised 25 grounds of appeal, which, for the sake of brevity, are not reproduced herein.

The ground Nos. 1 to 12 of the revised grounds of appeal pertain to TP adjustment made in relation to international transaction with the US based AE.

At the outset, we note that these grounds have been withdrawn vide order sheet entry dated 15th September 2025 in pursuance to ITA No.1720 & 2062/Bang/2017

The ground Nos. 13 to 17 of the revised grounds of appeal pertain to TP adjustment made in relation to international transaction with the non-US based AE.

At the outset, we note that the assessee through learned AR submitted to keep this issue open. Hence, we are not adjudicating the same.

The ground No. 18 of the revised grounds of appeal pertains to inclusion and exclusion of comparables.

At the outset, we note that the issues raised by the assessee in the captioned grounds of appeal are identical to the issue raised by the group concern of the assessee, namely NTT Data Global Delivery Services Pvt Ltd in IT(TP)A No. 1720/Bang/2017. Therefore, the findings given in IT(TP)A No. 1720/Bang/2017 shall also be applicable for the ground of appeal raised by the appellant assessee. The appeal of the group concern in IT(TP)A No. 1720/Bang/2017 has been decided by us vide paragraph No. 18 of this order partly in favour of the assessee. The learned AR and the DR also agreed that whatever the findings in IT(TP)A No. 1720/Bang/2017 shall also be applied for present appeal. Hence, the ground of appeal filed by the assessee is hereby partly allowed.

At the outset, we note that the assessee through learned AR submitted to keep this issue open. Hence, we are not adjudicating the same.

The revised ground No. 21 of the assessee’s appeal is that the AO/DRP erred in not providing the working capital adjustment even though the TPO has accepted the same.

1 At the outset the ld. DR requested to issue a direction to allow the adjustment in the working capital adjustment as per the provisions of law. On the contrary, the ld. DR raised no objection on issuing such a direction. Accordingly, we direct the TPO to provide the necessary adjustment qua the working capital after necessary verification and as per law. Hence, the ground of appeal of the assessee is allowed for statistical purposes.

The revised ground No. 22 of the assessee’s appeal is that the AO erred in not providing the credit under section 90 of the Act for Rs. 2,03,90,347/- only.

At the outset, we note that the issue raised by the assessee in the captioned grounds of appeal is identical to the issue raised by the group concern of the assessee, namely NTT Data Global Delivery Services Pvt Ltd in IT(TP)A No. 1720/Bang/2017. Therefore, the findings given in ITA No.1720 & 2062/Bang/2017

The revised ground No. 23 of the assessee’s appeal is that the AO erred in levying the notional interest of 39,30,643/- only.

At the outset, we note that the assessee, through learned AR submitted that issue, is not pressed. Hence, we dismiss the same as not pressed.

The revised ground No. 24 of the assessee’s appeal pertains to not to make necessary adjustment on risk profile.

At the outset, we note that the assessee, through learned AR submitted to keep this issue open. Hence, we are not adjudicating the same.

The revised ground No. 25 of the assessee’s appeal pertains to the initiation of penalty proceedings u/s 271(1)(c) of the Act, which is premature to decide at this stage. Hence, we dismiss the same as infructuous.

In the combined result, both the appeals of the assessee are partly allowed for statistical purposes.

The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file