PRACTO TECHNOLOGIES PRIVATE LIMITED,BANGALORE vs. THE DEPUTY COMMISSIONER OF INCOME TAX , CENTRAL CIRCLE 1(3), BENGALURU, BANGALORE

PER KESHAV DUBEY, JUDICIAL MEMBER:

This appeal at the instance of the assessee is directed against the order of ld. DCIT, Central Circle-1(3), Bengaluru passed under section 147 r.w.s. 144 r.w.s. 144C(13) of the Income Tax Act, 1961
(in short “The Act”) dated 17.01.2024 vide DIN and Order No.
ITBA/AST/S/144/2023-24/1059802929(1) for the assessment year
2015-16. 2. The grounds raised by the assessee in this appeal are as follows:

Grounds relating to technical and juri ictional matters
1. Assessment Order not in conformity with the directions of the Hon’ble DRP
1.1. On the facts and in the circumstances of the case and in law, the Learned
AO erred in not passing the Assessment Order dated 17 January 2024 in conformity with the directions of the Hon’ble DRP dated 22 December
2023 under section 144C(10) r.w.s. 144C(13) of the Act, hence, the IT(TP)A No.311/Bang/2024
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Assessment Order deserves to be quashed as void-ab-initio.
2. Reassessment proceedings in contravention of the applicable provisions of the Act
2.1. On the facts and in circumstances of the case and in law, the Learned AO erred in not accepting the return of income filed on 7 July 2021 pursuant to notice under section 148 of the Act.
2.2. On the facts and in circumstances of the case and in law, the Learned AO erred in not issuing notice under section 143(2) of the Act pursuant to the return filed in compliance to section 148 of the Act. Accordingly, reassessment proceedings under section 147 of the Act are invalid and bad in law.
3. Assessment Order passed by the Learned AO under section 144 rws 147 rws
144C(13) of the Act is barred by limitation under section 153 of the Act
3.1. On the facts and in the circumstances of the case and in law, the Assessment Order dated 17 January 2024 passed by the Learned AO under section 147 r.w.s. 144 r.w.s. 144C(13) of the Act is barred by limitation under section 153 of the Act and therefore, is void-ab-initio, bad in law and is liable to be quashed.
4. Assessment not in conformity with provisions of section 144 and 144B of the Act
4.1. On the facts and in circumstances of the case and in law, the Learned
Assessing Officer has erred in undertaking the best judgement assessment under section 144 of the Act without issuing a show cause notice to the Appellant, to demonstrate why assessment should not be completed to the best of his judgement.
4.2. On the facts and in circumstances of the case and in law, the Assessment
Order, being not in conformity with the mandatory procedures laid out in section 144 of the Act for best judgement assessment is bad in law, void ab initio and contrary to the facts and circumstances of the case and is liable to be quashed.
5. No Document Identification Number (‘DIN’) on the directions issued by the Hon’ble DRP
5.1. On the facts and in the circumstances of the case and in law, the Hon’ble
DRP erred in not quoting a valid computer-generated DIN on the body of the directions dated 22 December 2023 passed under section 144C(5) of the Act, which is in contravention to the Circular No. 19 of 2019 by the Central Board of Direct Taxes, thus rendering such an order / direction to IT(TP)A No.311/Bang/2024
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be invalid and never to have been issued as per para 4 of the said
Circular.
5.2. On the facts and in the circumstances of the case and in law, the Assessment Order passed pursuant to invalid and non-est directions of the Hon’ble DRP, is bad in law, null and void and liable to be quashed. The Appellant humbly prays that the Assessment Order be treated as bad in law and ought to be quashed.
Grounds relating to TP matters
6. General
6.1. On the facts and in the circumstances of the case and in law, the Hon’ble
DRP/Learned AO/Learned TPO erred in making TP adjustment of INR
71,41,014 towards international transaction of provision of software development service, INR 12,93,583 towards international transaction of provision of information technology enables services, INR 86,09,113
towards international transaction of provision of marketing support services and INR 3,42,78,18,865 towards international transaction of transfer of Intellectual Property (‘IP’) to its Associated Enterprise (‘AE’).
6.2. On the facts and in the circumstances of the case and in law, the Hon’ble
DRP/Learned AO/Learned TPO erred in not appreciating that there cannot be any adjustment under Chapter X in the absence of accrual of real income.
7. Valuation of IP - Adjustment amounting to INR 3,42,78,18,865
7.1. On the facts and circumstances of the case and in law, the Hon’ble
DRP/Learned AO/Learned TPO erred in making an upward transfer pricing adjustment of INR 3,42,78,18,865 on international transaction of transfer of IP to the Appellant’s AE i.e., Practo Pte. Ltd., Singapore. In doing so, Hon’ble DRP/Learned AO/Learned TPO erred in:
7.1.1. commenting that the Appellant has wilfully undervalued the IP asset to reduce the tax liability of the country, without any credible basis;
7.1.2. not appreciating that certain intangibles were not transferred as part of this transfer process viz. Doctor Network, Customer
Contracts and Databases were retained by the Appellant;
7.1.3. not appreciating that the value of the enterprise is different from the value of certain intangibles transferred to the AE;

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7.1.4. not appreciating that the valuation reports (issued by M/s. MRV
Krishna & Co and M/s. Guru & Jana) were undertaken for different purposes and were based on different assumptions;
7.1.5. not considering the actual financial results of the Appellant and Practo Pte. Ltd, Singapore, as submitted during the assessment proceedings;
7.1.6. failing to determine if the proposed license fee (i.e., 75% of revenues) meets the arm’s length standard nature and arbitrarily considering the said data for the purposes of valuing the IP;
7.1.7. not appreciating that no license fee on the said IPs has been paid by the Appellant to Practo Pte. Ltd, Singapore for the year under consideration;
7.1.8. failing to adjust the intercompany cost-plus remuneration with respect to software development services, other support and marketing support services that were received by the Appellant, for the firm-wide valuation, which should have been excluded for the purposes of determining the value of IP;
7.1.9. not appreciating that the variation in projections in the two valuation reports is attributable to the change in character of the company from a risk bearing to a cost plus company after the transfer of the IP;
7.1.10. Arbitrarily concluding that the funding received from Practo Pte.
Ltd, Singapore against share capital is basically the funding received prima-facie from third party investors which is based on the valuation of the Appellant;
7.1.11. Using an adhoc basis to determine the arm’s length price and not determining the ALP of international transaction as per the provisions of section 92C(2) of the Act; and 7.1.12. not appreciating the business and commercial realities in the process of interfering with the value at which the IP was transferred.
(Tax Effect: INR 77,67,43,755)
8. Rejection of TP Documentation
8.1. On the facts and circumstances of the case and in law, the Hon’ble

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DRP/Learned AO/Learned TPO erred in invoking the provisions of Section 92C(3) of the Act and not accepting the TP documentation/economic analysis which was undertaken by the Appellant in accordance with the provisions of the Act read with the Income-tax Rules, 1962 (‘the Rules’) and conducting a fresh economic analysis for the determination of the arm’s length price of the impugned international transactions.
8.2. On the facts and circumstances of the case and in law, the Hon’ble
DRP/Learned AO/Learned TPO erred in:
8.2.1. Rejecting the high turnover filter of the Appellant while applying filter to reject companies with turnover less than 1 Crore.
8.2.2. Incorrect application of Rule 10B(5) to undertake a fresh search which is non-contemporaneous and against the principles contained under Rule 10D(4) of the Rules; and 8.2.3. Conducting a search which is not in good faith.
8.3. On the facts and circumstances of the case and in law, the Hon’ble
DRP/Learned AO/Learned TPO erred in modifying and erroneously interpreting the facts provided by the Appellant in the TP documentation and various submissions.
9. Software development services segment – Adjustment amounting to INR
71,41,014
9.1. On the facts and in circumstances of the case and in law, the Hon’ble
DRP / Learned AO/ Learned TPO erred in making an upward transfer pricing adjustment of INR 71,41,014 on the international transaction of provision of software development services to its AEs.
9.2. On the facts and in the circumstances of the case and in law, the Hon’ble DRP/Learned AO/Learned TPO erred in not adopting the upper turnover filter of INR 200 crores while undertaking the comparability analysis for the Appellant’s international transaction pertaining to provision of software development services. Based on the application of the INR 1 to INR 200 crore turnover filter, the following companies ought to be excluded from the final list of comparable companies:
9.2.1. Tata Elxsi Ltd. (Seg)
9.2.2. Mindtree Ltd.
9.2.3. Larsen & Toubro Infotech Ltd.
9.2.4. R S Software (India) Ltd.

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9.2.5. Persistent Systems Ltd.
9.2.6. Nihilent Technologies Ltd.
9.2.7. Infosys Ltd.
9.2.8. Cybage Software Pvt. Ltd.
9.3. On the facts and in circumstances of the case and in law, the Hon’ble
DRP / Learned AO/ Learned TPO erred in including certain companies in the comparability analysis which do not satisfy the test of comparability in relation to the software development services segment of the Appellant:
9.3.1. Larsen & Toubro Infotech Ltd
9.3.2. Persistent Systems Ltd.
9.3.3. Nihilent Technologies Ltd.
9.3.4. Aspire Systems (India) Pvt. Ltd.
9.3.5. Inteq Software Pvt. Ltd.
9.3.6. Infosys Ltd.
9.3.7. Cybage Software Pvt. Ltd.
9.4. On the facts and in circumstances of the case and in law, the Learned
AO/ Learned TPO erred in not following the directions of the Hon’ble
DRP to rectify the computation of operating mark-up for certain companies while performing the comparability analysis:
9.4.1. CG-VAK Software & Exports Ltd.
9.5. On the facts and in circumstances of the case and in law, the Hon’ble
DRP / Learned AO/ Learned TPO erred in not including certain companies in the comparability analysis which satisfy the test of comparability in relation to the software development services segment of the Appellant:
9.5.1. Akshay Software Technologies Ltd.
9.5.2. Sasken Communication Technologies Ltd. (Seg)
9.5.3. Infomile Technologies Ltd.
(Tax Effect: INR 24,27,231)
10. Information technology enables services segment – Adjustment amounting to INR 12,93,583
10.1. On the facts and in circumstances of the case and in law, the Hon’ble
DRP / Learned AO/ Learned TPO erred in making an upward transfer pricing adjustment of INR 12,93,583 on the international transaction of provision of information technology enabled services to its AEs.

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10.2. On the facts and in the circumstances of the case and in law, the Hon’ble DRP/Learned AO/Learned TPO erred in not adopting the upper turnover filter of INR 200 crores while undertaking the comparability analysis for the Appellant’s international transaction pertaining to provision of information technology enables services. Based on the application of the INR 1 to INR 200 crore turnover filter, the following companies ought to be excluded from the final list of comparable companies:
10.2.1. Tech Mahindra BPSL
10.2.2. Infosys BPO Ltd.
10.2.3. SPI Technologies India Pvt. Ltd.
10.2.4. MPS Ltd.
10.3. On the facts and in circumstances of the case and in law, the Hon’ble
DRP / Learned AO/ Learned TPO erred in including certain companies in the comparability analysis which do not satisfy the test of comparability in relation to information technology enables services segmentof the Appellant:
10.3.1. Cross Domain Solutions Private Limited
10.3.2. SPI Technologies India Private Limited
10.3.3. Infosys BPO Limited
10.3.4. E-Care India Private Limited
10.3.5. MPS Limited
10.3.6. Excel Infoways Limited
10.4. On the facts and in circumstances of the case and in law, the Learned
AO/ Learned TPO erred in not following the directions of the Hon’ble
DRP to rectify the computation of operating mark-up for certain companies while performing the comparability analysis:
10.4.1. Tech Mahindra Business Services Ltd.
10.4.2. BNR Udyog Limited
(Tax Effect: INR 4,39,689)
11. Marketing Support Services segment – Adjustment amounting to INR
86,09,113
11.1. On the facts and in circumstances of the case and in law, the Hon’ble
DRP/Learned AO/Learned TPO erred in making an upward transfer pricing adjustment of INR 86,09,113 on the international transaction of provision of marketing support services to its AEs.

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11.2. On the facts and in the circumstances of the case and in law, the Hon’ble DRP/Learned AO/Learned TPO erred in not adopting the upper turnover filter of INR 200 crores while undertaking the comparability analysis for the Appellant’s international transaction pertaining to provision of marketing support services. Based on the application of the INR 1 to INR 200 crore turnover filter, the following companies ought to be excluded from the final list of comparable companies:
11.2.1. Just Dial Ltd
11.2.2. Rites Ltd.
11.3. On the facts and in circumstances of the case and in law, the Hon’ble
DRP/Learned AO/Learned TPO erred in including certain companies in the comparability analysis which do not satisfy the test of comparability in relation to marketing support services segmentof the Appellant:
11.3.1. Axience Consulting Pvt. Ltd.
11.3.2. Axis Integrated Systems Ltd.
11.3.3. Digital Radio (Delhi) Broadcasting Ltd.
11.3.4. Just Dial Ltd.
11.3.5. Rites Ltd.
11.3.6. Platinum Advertising Pvt. Ltd.
11.4. On the facts and in circumstances of the case and in law, the Learned
AO/ Learned TPO erred in not following the directions of the Hon’ble
DRP to rectify the computation of operating mark-up for certain companies while performing the comparability analysis:
11.4.1. Axience Consulting Pvt. Ltd.
11.4.2. Just Dial Ltd.
11.4.3. Rites Ltd.
11.4.4. Irclass India Pvt. Ltd.
11.4.5. Ugam Solutions Pvt. Ltd.
11.5. On the facts and in circumstances of the case and in law, the Learned
AO/ Learned TPO erred in not following the directions of the Hon’ble
DRP and not including certain companies in the comparability analysis which satisfy the test of comparability in relation to the marketing support services segment of the Appellant:
11.5.1. Showhouse Event Management Pvt Ltd
11.5.2. Fusion Events Pvt. Ltd
11.6. On the facts and in circumstances of the case and in law, the Hon’ble
DRP / Learned AO/ Learned TPO erred in not including certain

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companies in the comparability analysis which satisfy the test of comparability in relation to the marketing support services segment of the Appellant:
11.6.1. MCI Management India Pvt. Ltd.
11.6.2. Competent Automobiles Co. Ltd. (Service & Spares)
(Tax Effect: INR 29,26,238)
Grounds relating to Corporate Tax matters
12. Method of computation of capital gains on transfer of IP to AE Practo Pte
Ltd., Singapore (Without prejudice to Ground of Appeal No. 8)
12.1. On the facts and circumstances of the case and in law, the Hon’ble
DRP/Learned AO erred in bringing to tax the gains on transfer of IP without appreciating the fact that the computation mechanism of capital gains as provided under Chapter IV fails and therefore the transfer price of IP received by Appellant from its AE i.e., Practo Pte. Ltd., Singapore ought to be treated as capital receipt and not chargeable to income tax.
12.2. Without prejudice to the above, on the facts and circumstances of the case and in law, the Hon’ble DRP/Learned AO while computing long term capital gain of INR 3,42,78,18,865, erred in treating the cost of acquisition of all the IPs (including technological IPs) as NIL as per the provisions of section 55(2) of the Act without appreciating that the said provisions do not apply to the technological IPs transferred during the year.
13. Disallowance under section 14A of the Act read with rule 8D of the Rules amountingto INR 24,00,068
13.1. On the facts and circumstances of the case and in law, the Hon’ble DRP
/ Learned AO erred in making disallowance of expenses under section 14A of the Act read with Rule 8D of the Rules.
13.2. On the facts and circumstances of the case and in law, the Hon’ble DRP
/ Learned AO erred in considering the investment value under Rule 8D of the Rules to even those investments, which did not yield any exempt income during the year.
13.3. On the facts and circumstances of the case and in law, the Hon’ble DRP
/ Learned AO has failed to appreciate that investments yielding exempt income were made out of own funds of the Appellant and no interest cost is attributable to the exempt income under Rule 8D(2)(ii) of the Rules.

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13.4. On the facts and circumstances of the case and in law, the Hon’ble DRP
/ Learned AO erred in not restricting the disallowance under section 14A of the Act to INR 5,53,950 being exempt income earned by the Appellant during the year.
13.5. Notwithstanding anything contained in grounds above, on the facts and circumstances of the case and in law, the Learned AO erred in not following the directions of the Hon’ble DRP while passing the Assessment Order and made a disallowance of INR 24,00,068 without considering the suo-moto disallowance of INR 22,68,047 made the Appellant in the original return of income, thereby resulting in double disallowance.
(Tax effect: INR 8,15,783)
14. Disallowance of AMP expenses amounting to INR 3,48,14,372
14.1. On the facts and circumstances of the case and in law, the Hon’ble DRP
/ Learned AO erred in disallowing AMP expenses to the tune of INR
3,48,14,372 by alleging the same to be capital in nature and are not wholly or exclusively incurred for the purpose of business.
14.2. On the facts and circumstances of the case and in law, the Learned AO has erred in:
14.2.1. Not following the directions of the Hon’ble DRP while passing the Assessment Order and not considering the factual report submitted by the Learned AO to the Hon’ble DRP whereby
INR 4,04,15,218 out of the total AMP expense (of INR 4,35,17,965) should be treated as revenue expense and on the balance amount, depreciation under section 32 of the Act ought to be allowed.; and 14.2.2. Treating balance AMP expenditure of INR 31,02,747 as capital in nature even though it was incurred for the purpose of day-to-day business operations of the Appellant and is within the 20% threshold adopted by Learned AO making the said adjustment. The Learned AO has erred in not appreciating that balance AMP expenditure of INR 31,02,747 is therefore allowable expenditure under section 37 of the Act.
(Tax effect: INR 1,18,33,405)
15. Levy of interest under section 234A of the Act amounting to INR
52,58,48,793

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15.1. On the facts and in circumstances of the case and in law, the Learned
AO erred in levying interest under section 234A of the Act amounting to INR 52,58,48,793 ignoring the fact that the delay was not attributable to the Appellant but was on account of technical glitch on the income-tax e- filing portal to which the Appellant had no control.
15.2. On facts and in circumstances of the case and in law, the Appellant denies its liability to pay interest under section 234A of the Act.
15.3. Without prejudice to the above, on the facts and in circumstances of the case and in law, the Learned AO erred in wrongly calculating and levying excess interest under section 234A of the Act.
(Tax Effect: INR 52,58,48,793)
16. Excess Levy of interest under section 234B of the Act amounting to INR
80,78,25,682
16.1. On the facts and in circumstances of the case and in law, the learned AO has erred in levying interest of Rs. 80,78,25,682 under section 234B of the Act and the Appellant denies its liability to pay such interest.
16.2. Without prejudice to the above, on the facts and in circumstances of the case and in law, the Learned AO erred in wrongly calculating and levying excess interest under section 234B of the Act amounting to INR
80,78,25,682 instead of INR 72,06,55,910. (Tax Effect: INR 8,71,69,772)
17. Levy of interest under section 234D of the Act amounting to INR 74,420
17.1. On the facts and in circumstances of the case and in law, the learned AO has erred in levying interest of Rs. 74,420 under section 234D of the Act and the Appellant denies its liability to pay such interest.
(Tax Effect: INR 74,420)
18. Penalty Proceedings
18.1. On the facts and in circumstances of the case and in law, the Learned
AO erred in initiating penalty proceedings under section 274 r.w.s.
271(1)(c) of the Act.
That the Appellant craves leave to add to and / or to alter, amend, rescind, modify the grounds herein below or produce further documents before or at the time of hearing of this Appeal.

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3
Marketing
Support Services
(‘MSS’)
A set of11comparable companies was determined and the median arm’s length mark-up was computed at 22.88%,as against the10% earned by the Assessee.
10,372,814
4
Valuation of intangible asset transferred to AE
The value of intangible was determined to be75% of the value of the firm as computed by MRV Krishna & Co.
3,466,757,250

TOTAL

3,487,865,338

Total income as per return of income
(11,82,20,816)
1. Arm’s Length Price for Software Development services to AE
71,41,014
2. Arm’s Length Price for Information Technology enables
Services segment to AE
12,93,583
3. Arm’s Length Price for Marketing Support Services
86,09,113
4. Valuation of Intellectual Property (‘IP’) transferred to AE
342,78,18,865

Total adjustment u/s 92CA
344,48,62,575

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5. Disallowance of advertising, marketing & promotion expenses us 37
3,48,14,372
6. Disallowance us 14A
24,00,068

Assessed Income
3,363,856,199

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The Hon’ble High court of Delhi in the case of PCIT v. S.G. Portfolio
(P.) Ltd [2023] 151 taxmann.com 307 (Delhi), has held that when a return was in place in the form of original return filed, the AO was required to issue a notice under section 143(2) and recourse to section 144 of the Act was incorrect.

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making even the assessment order under section 144 of the Act being illegal & bad in law.

Order pronounced in the open court on 20th Feb , 2025 (Waseem Ahmed)
Accountant Member (Keshav Dubey)
Judicial Member

Bangalore,
Dated 20th Feb, 2025. VG/SPS

Copy to:
1. The Applicant
2. The Respondent
3. The CIT
4. The DR, ITAT, Bangalore.
5
Guard file

By order

Asst.