UST GLOBAL TECHNOLOGY SERVICES (INDIA) PRIVATE LIMITED,KOCHI vs. DCIT,CORPORATE CIRCLE 2(1), KOCHI

4. The TPO vide order dated 09/10/2023 passed u/s. 92CA(3), suggested the TP adjustment in respect of software development agreement of Rs. 12,84,50,000/- and also interest on delayed receivables of Rs. 5,97,26,729/- u/s. 92CA of the Act. While doing

3 S.A.No. 66/Coch/2025 & (UST Global Technology Services (I) P. Ltd. so, the TPO rejected the TP study report submitted by the appellant company and proceeded with the benchmarking of the transaction by adopting the following filters:- a. Use of current year data wherever available. b. Companies having different financial year ending (i.e. not March 31, 2021) or data of the company which does not fall within 12 month period i.e. 01/04/2020 to 31/03/2021, were rejected. c. Companies whose income was less than Rs. 1 crore were excluded. d. Companies whose Software Development Service/ITES income is less than 75% of its total operating revenues were excluded. e. Companies who have more than 25% related party transactions of the sales were excluded f. Companies who have export service income less than 75% of the sales were excluded g. Companies with employee cost less than 25% of turnover were excluded 5. Based on the above filters, the TPO adopted the following comparables:-

6. The TPO suggested the TP adjustment of Rs. 12,84,50,000/- in respect of IT segment and Rs.5,97,26,729/- in respect of interest receivables on delayed realization of debts from the appellant’s AEs and computed the ALP as under:-

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8. On receipt of TPO’s order, the draft assessment order was passed by the AO u/s. 144C(1) of the Act on 18/12/2023 for the A.Y. 2021-22 after proposing the addition on account of TP addition suggested by the TPO of Rs. 18,81,76,729/-. On receipt of draft assessment order, several objections were raised by the appellant before the Dispute Resolution Panel (DRP). The DRP had dismissed all the objections raised by the appellant. After receipt of the directions issued by the DRP, the final assessment order was passed vide order dated 23/10/2024 passed u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B of the Act at a total income of Rs. 30,64,89,430/-. While doing so, the AO made the addition of Rs. 18,81,76,729/- u/s. 92CA of the Act.

“1. The Order/Directions are bad in law and on facts 1.1 The assessment order passed by the Ld. AO, under Section 143(3) read with Section 144C(13) and 1448 of the Act is without jurisdiction, bad in law and on facts and is in violation of the principles of natural justice. Without prejudice to the generality of the above, the order issued by the Ld. AO is bad in law in so far as the fact that the Ld. AO did not issue to the Appellant, a show cause notice for such reference, as per proviso to Section 92C(3) of the Act. 1.2 The Ld. AO/ Ld. TPO/ Ld. Panel have erred in not demonstrating that the motive of the Appellant was to shift profits outside of India by manipulating the prices charged in its international transactions, which is a pre-requisite condition to make any adjustment under the provision of Chapter X of the Act.

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2. Re-computation of the segment margin by the Ld. TPO 2.1 The Ld. AO/Ld. TPO/Ld. Panel have erred in facts by considering the foreign exchange loss as operating expenses; 2.2 The Ld. AO/ Ld. TPO/ Ld. Panel have erred in facts by considering the depreciation of Right to use ('RTU') of assets as operating expenses; 3. Disregarded the TP study and non-contemporaneous data used by the Ld. TPO 3.1 The Ld. AO/ Ld. TPO/Ld. Panel have erred in facts and in law, in making an addition to the total returned income of the Appellant, on account of TP matters, by re-determining Arm's Length Price ('ALP') for the provision of IT services. 3.2 The Ld. AO/ Ld. TPO/ Ld. Panel have erred in law by selecting the final list of alleged comparable companies solely based on financial data for FY 2020-21; and the companies from such list were further evaluated for comparability in either or both of the preceding two financial years (FY 2019-20 and FY 2018- 19). 3.3 The Ld. TPO/ Ld. AO/ Ld. Panel erred in facts and in law, by arbitrarily rejecting the TP study (including the benchmarking analysis, filters applied, and comparable companies selected therein) maintained by the Appellant without giving due regard to the facts and circumstances of the business of the Appellant.

4. Comparability Analysis adopted by the Ld. TPO for determination of arm's length price 4.1 The Ld. TPO/ Ld. AO/ Ld. Panel erred in law and in facts, by rejecting companies with different financial year ending (i.e., other than 31 March). 4.2 The Ld. TPO/ Ld. AO/ Ld. Panel while applying the turnover filter rejected companies having turnovers less than INR 1 crore, however, erred in not applying an appropriate upper limit to reject high turnover companies and thereby, erred in accepting companies without considering the turnover and size of the Appellant and comparables.

8 S.A.No. 66/Coch/2025 & (UST Global Technology Services (I) P. Ltd. 4.3 The Ld. TPO/ Ld. AO/ Ld. Panel erred in law and in facts, by rejecting companies having service revenue less than 75 percent of total operating revenue. 4.4 Without prejudice to the TP study maintained, the Ld. TPO/ Ld. AO/ Ld. Panel erred in law and in facts, by applying 25 percent related party criteria in accepting/ rejecting comparables. 4.5 The Ld. TPO/ Ld. AO/ Ld. Panel erred in rejecting comparable companies having export earnings less than 75 percent of the total sales. 4.6 The Ld. AO/ Ld. TPO/ Ld. Panel erred in facts and in law by benchmarking the transactions of provision of IT service of the Appellant with companies operating as full-fledged entrepreneurs thereby not considering the differences in the functions performed, assets employed, and risk undertaken by the Appellant vis-à-vis the companies selected as being comparable.

2. Sagarsoft (India) Ltd 3. Nihilent Ltd.

6. Net4Nuts Ltd 7. Tata Elxsi Pvt Ltd.

9 S.A.No. 66/Coch/2025 & (UST Global Technology Services (I) P. Ltd. 1. Orangescape Technologies Limited 2. E-Zest Solutions Ltd 3. R Systems International Ltd. - Information Technology Services & Products segment. 4. Informile Technologies Ltd 5. Isummation Technologies Pvt Ltd.

7. Erroneously computed the margins of the companies selected as comparable 7.1 The Ld. AO/ Ld. TPO/ Ld. Panel erred in facts and in law in erroneously computing the margins of following companies identified as comparable by the Ld. TPO. 1. Mindtree Limited 2. Larsen and Toubro Infotech Limited 3. Wipro Ltd 4. Net4Nuts Ltd. 5. Tata Elxsi Ltd. 6. Infosys Ltd. 7. CG-VAK Software & Exports Ltd.

9.1 The Ld. AO/Ld. TPO/ Ld. Panel erred in law and in facts, by considering inter-company trade receivables outstanding beyond

10 S.A.No. 66/Coch/2025 & (UST Global Technology Services (I) P. Ltd. 60 days, as a separate international transaction without appreciating that such outstanding receivables are intrinsically linked to the primary international transaction of provision of IT service, which has already been held to be at arm's length.

9.2 The Ld. AO/ Ld. TPO/ Ld. Panel erred in law and in facts by characterizing the delayed intercompany trade receivables as a loan extended by the Appellant to its AEs, without appreciating that the said outstanding receivables have only arisen as a result of the primary international transaction and are not in the nature of a capital financing arrangement.

9.3 The Ld. AO/ L.d. TPO/ Ld. Panel erred in law and in facts, by not appreciating that since such outstanding receivables are closely linked to the main international transaction, the arm's length price determination is already subsumed within the arm's length price determination of the principal international transaction itself, which has been held to be at arm's length by the Ld. TPO himself.

9.4 The Ld. AO/ Ld. TPO/ Ld. Panel erred in law and in facts, by not following a consistent approach as compared to previous FY 2019-20, where credit period was accepted as 180 days. 9.5 The Ld. AO/ Ld. TPO/ Ld. Panel erred in law and in facts, by not considering the business reasons for delay in collection of trade receivable, including delay in collection from the ultimate customer. 9.6 The Ld. AO/ Ld. TPO/ Ld. Panel erred in law and in facts by considering Comparable Uncontrolled Price ('CUP') as the most appropriate method to benchmark the alleged international transaction, without appreciating that CUP requires exact and highest level of comparability, which the Ld. TPO has failed to demonstrate. The Ld. AO/Ld. Panel erred in confirming the same.

9.7 Without prejudice to the other Grounds, The Ld. AO/Ld. TPO/Ld. Panel erred in law and in facts by proceeding to compare the alleged international transaction to a foreign currency denominated loan (referred in the RBI circular) without acknowledging that such alleged loan by the Appellant to AE lacks fundamental attributes of the ECB, such as agreement, terms, etc.

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10. Consequential levy of interest under Section 234A and 2348 of the Act 10.1 On the facts and in the circumstances of the case and in law, the learned AO has erred in computing interest under section 234A and 234B of the Act.

11. At the outset, learned counsel for the appellant submits that the TPO ought to have applied upper turnover limit having adopted the lower turnover limit of Rs. 1.00 crore filter for the purpose of choosing the comparables. We find merit in the submissions made by the learned counsel. We are of the considered opinion that the TPO having adopted the lower turnover filter ought to have applied appropriate upper turnover limit filter. Thus, the exercise of benchmarking the international transaction undertaken by the TPO is flawed. Since by adoption of upper turnover filter, may undergo change in the entire complexation of the matter, we are of the considered opinion that the matter requires remand to the AO/ TPO for the purpose of undertaking the fresh exercise of benchmarking the international transaction by adopting the upper turnover filter. We make it clear that all other contentions raised before us by the appellant-company, are kept open before the AO/TPO for fresh consideration. Thus, this appeal filed by the Assessee stands partly allowed for statistical purposes.

12 S.A.No. 66/Coch/2025 & (UST Global Technology Services (I) P. Ltd. 12. Since we have decided the appeal in the stay application filed by the appellant is dismissed as infructuous.

Order pronounced in open Court on 8th September, 2025.