India vs Xchanging Solutions Limited, April 2026, Income Tax Appellate Tribunal, Case No 385/Bang/2025
Table of Contents
Case Information
Court: Income Tax Appellate Tribunal, 'C' Bench, Bangalore
Case number: ITA No. 385/Bang/2025
Citation: ITA No. 385/Bang/2025
Applicant: M/s. Xchanging Solutions Limited (formerly known as Cambridge Solutions Limited)
Respondent: The Deputy Commissioner of Income Tax, Circle 7(1)(1), Bangalore
Jurisdiction: Bangalore, India
Judgment date: 06 April 2026
Judgment Summary
This appeal was filed by M/s. Xchanging Solutions Limited for assessment year 2011-12 against a final assessment order dated 27 December 2024, passed by the Deputy Commissioner of Income Tax, Circle 7(1)(1), Bangalore, in pursuance of directions of the Dispute Resolution Panel (DRP) [para 1].
The core procedural question was whether a Transfer Pricing Officer (TPO) and a DRP could act on, or fail to act on, directions given to them by an earlier ITAT order, in circumstances where neither body was a party before the Tribunal [paras 22-23].
The Tribunal held that the ITAT's earlier direction to remit the exclusion of five comparables to the DRP was procedurally irregular because the DRP and TPO are not respondents before the ITAT and were never served with the order. Nonetheless, the Tribunal found that the DRP had in substance considered and rejected the assessee's objections to those five comparables in its direction dated 29 November 2024. Despite finding no remaining procedural grievance in substance, the Tribunal directed the assessing officer to remove all five comparables from the arm's length price computation for software development services, correcting the order to the extent of the irregularity that had occurred [paras 30-31].
The appeal was partly allowed.
Background
M/s. Xchanging Solutions Limited (formerly Cambridge Solutions Limited) filed its return of income for assessment year 2011-12 declaring total income of Rs. Nil. The case was selected for scrutiny and a final assessment order was passed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961, determining assessed income at Rs. 190,805,854 [para 3].
The assessee appealed to the ITAT, which passed an order in IT(TP) A No. 492/Bangalore/2015 on 19 January 2022. A subsequent miscellaneous application, MA No. 61/Bangalore/2022, was disposed of on 26 August 2022, granting further partial relief to the assessee [paras 4-5].
In that earlier ITAT order, the Tribunal dealt with the assessee's requests for exclusion of five comparables, namely E Info Chips Limited, Acropetal Technologies Limited, E Zest Solutions Ltd, ICRA Techno Analytics Ltd, and Persistent Systems and Solutions Ltd. Because these exclusion grounds had not been raised before the DRP and were raised for the first time before the ITAT, the coordinate bench restored the exclusion issue to the DRP for fresh consideration [paras 6-7].
The assessee had also argued for inclusion of R Systems International Limited and Helios and Mathsons Information Technology Ltd, and the ITAT restored those inclusion questions to the TPO for fresh consideration [para 8].
The TPO passed an order under section 92CA read with section 254 of the Act on 29 January 2024. The TPO included R Systems International Limited and Helios and Mathsons Information Technology Ltd as directed by the ITAT, but did not exclude the five comparables because no direction to exclude had been given to him. The TPO retained the software development segment adjustment at Rs. 43,166,829 and a corporate guarantee commission at Rs. 2,047,608, giving a total adjustment of Rs. 45,214,437 [paras 10, 27-28].
The assessing officer then passed a draft assessment order under section 144C on 29 February 2024. The assessee objected before the DRP. The DRP issued its direction on 29 November 2024, confirming the inclusion of all five comparables and rejecting the assessee's objections in paragraph 5.1 of that direction. The final assessment order was passed on 27 December 2024 [paras 11, 13, 16, 30].
Core Dispute
The primary dispute concerned whether the final assessment order dated 27 December 2024 was valid in circumstances where the ITAT's earlier order had directed the DRP, and not the TPO, to reconsider the exclusion of five named comparables, but the DRP had not acted on that direction until the later round of proceedings [paras 2, 12, 17].
The assessee argued that the TPO had no authority to retain the five comparables because the ITAT had specifically directed the DRP to deal with them. The assessee contended that where a particular thing must be done in a particular manner, it must be done in that manner and no other, and that the TPO's action was without jurisdiction and bad in law [paras 17, 21].
The revenue argued that the ITAT had no valid statutory power to direct the DRP, that the DRP can only be activated by the assessee objecting to a draft assessment order, that neither the DRP nor the TPO was a respondent before the ITAT, and that the ITAT's direction to the DRP was impossible to perform. The revenue further submitted that the assessee had in substance obtained a full opportunity to contest the five comparables before both the TPO and the DRP in the subsequent proceedings, leaving no remaining grievance [paras 18-20].
Court Findings
The Tribunal held that in any appeal before it, the respondent is the assessing officer, and any direction the Tribunal gives must be directed to the assessing officer alone. The TPO and the DRP are not respondents before the ITAT and were not served with the earlier order. The Tribunal noted that neither the TPO nor the DRP was heard by the ITAT, and therefore no direction should have been given to them [paras 22-23].
The Tribunal observed that the DRP's jurisdiction under section 144C of the Act is activated solely when an eligible assessee objects to a draft assessment order; the DRP cannot be activated by any other authority or by a judicial body [para 22].
The Tribunal found as a matter of fact that the TPO, in his order dated 29 January 2024, had not touched the five comparables whose exclusion had been remitted to the DRP, and had confined himself to the matters restored to him, namely the inclusion of R Systems International Limited and Helios and Mathsons Information Technology Ltd [para 30].
The Tribunal further found that the DRP had in substance considered and rejected the assessee's objections to the five comparables in its direction dated 29 November 2024, at paragraph 5.1 of that direction. On that basis, the Tribunal accepted the revenue's argument that there was no remaining procedural grievance [para 30].
Nevertheless, the Tribunal held that the direction given by the ITAT to the DRP had not been complied with in time, and that the irregularity required correction. It therefore directed the assessing officer to remove all five comparables when recomputing the arm's length price for software development services, requiring the adjustment of Rs. 43,166,829 to be recomputed accordingly [para 31].
The Tribunal found no other infirmity in the assessing officer's order [para 32].
Outcome
The appeal was partly allowed [para 34].
The Tribunal directed the assessing officer to exclude all five comparables, namely E Info Chips Limited, Acropetal Technologies Limited, E Zest Solutions Ltd, ICRA Techno Analytics Ltd, and Persistent Systems and Solutions Ltd, from the computation of the arm's length price for software development services [para 31].
The arm's length price adjustment of Rs. 43,166,829 for the software development segment was directed to be recomputed after excluding those five comparables [para 31].
The corporate guarantee commission adjustment of Rs. 2,047,608, which had been upheld at an arm's length rate of 0.5%, was not disturbed [paras 27-28].
No other grounds were adjudicated as no other arguments were advanced before the Tribunal [para 33].
TP Method Highlighted
The judgment does not expressly state the transfer pricing method applied. The comparables analysis relates to the software development services segment and uses operating profit margins as the relevant financial indicator. The margins noted in the judgment for the five disputed comparables were: Acropetal Technologies Limited 32.88%, E-Zest Solutions 20.90%, E Infochips Limited 57.77%, ICRA Techno Analysts Ltd 24.74%, and Persistent Systems and Solutions Ltd 23.11% [para 29]. The specific transfer pricing method is not named in the judgment.
Major Issues / Areas of Contention
- Whether the final assessment order dated 27 December 2024 was valid given that the ITAT's earlier order had directed the DRP, rather than the TPO or the assessing officer, to reconsider the exclusion of five comparables, and the DRP had not done so in the first instance.
- Whether the ITAT had statutory authority under section 254(1) of the Income Tax Act, 1961 to remit issues to the DRP, given that the DRP is not a respondent before the ITAT and was not served with the order.
- Whether the TPO acted without jurisdiction by retaining the five comparables that had been directed by the ITAT to the DRP for reconsideration.
- Whether the assessee retained any live grievance in respect of the five comparables, given that the DRP had in substance considered and rejected the assessee's objections to those comparables in its direction dated 29 November 2024.
- The correct computation of the arm's length price adjustment for the software development segment following the directed exclusion of the five comparables from the Rs. 43,166,829 adjustment.