Persistent loss filter excludes only companies with losses in three successive years; functionally dissimilar comparables with no segmental data excludable; foreign exchange gains from service exports are operating income for transfer pricing PLI.

ORDER

PER MANISH AGARWAL, AM:

This appeal is filed by the assessee against the final assessment order dated 23.11.2021 passed U/s 143(3) r.w.s.144C(13) read with section144B of the Income Tax Act, 1961 (hereinafter called ‘the Act’) subsequent to the direction of the Ld. Dispute Resolution Panel (DRP) vide direction dated 21.05.2024 for Asst. Year 2020-21.

2. Brief facts of the case are that assessee is a wholly owned subsidiary of Keysight Technologies Inc. and is engaged in the business of provision of IT Enabled Service (ITeS) and Software Development Services (SDS) providing to its Associate Enterprises (AEs). The return of income was filed on 11.12.2020 declaring total income of Rs. 35,83,73,670/-. The case of the assessee was selected for scrutiny and since the assessee was carried out international transactions with its AE, a reference was made to the Transfer Pricing Officer (TPO) u/s 92CA of the Act. The TPO made transfer price adjustments of Rs. 4,13,32,187/- towards software development services provided by the assessee to its AE. Thereafter, the AO passed draft assessment order dated 26.08.2023 u/s 144C(1) of the Act wherein he has proposed the additions on account of TP adjustment made by the TPO besides the other income offered in the modified return. Accordingly, total income of the assessee was proposed to be assessed at Rs. 52,42,24,672/-. Against the said order assessee filed objections before the ld. DRP who vide order dated 21.05.2024 disposed-off the objections by giving certain directions to AO/TPO. The TPO than pass the order giving effect and TP adjustment as made earlier was reduced to Rs. 2,67,19,413/. Thereafter, the AO passed the final assessment order dated 28.06.2024 wherein total income was assessed at Rs. 49,75,05,259/- by making addition on account of TP adjustment to the income declared in the modified return of income filed by the assessee.

3. Aggrieved by the said order, assessee is in appeal before the tribunal by taking following grounds of appeal:

“1. That on the facts and circumstances of the case and in law, the AO has erred in assessing the total income of the Appellant at INR 49,75.05.259/. in pursuance to the directions issued by the DRP, as against the retumed income of INR 35,83,73,670/- as per original tax return (returned income as per modified tax returned amounts to INR 48,28,92,480 filed under Section 92CD read with 139 of the Act pursuant to an Advance Pricing Agreement)

2. That on the facts and in the circumstances of the case and in law, the directions issued by the DRP are bad in law, void ab initio and liable to be quashed as the same have been passed in violation of the provisions of sub-section (8) to section 144C of the Act.

Transfer Pricing adjustment amounting to INR 2,67,19,413/- in respect of the international transactions pertaining to provision of software development services:

3. That on the facts and circumstances of the case and in law, the AO/TPO/ DRP have erred in making the transfer pricing adjustment amounting to INR 2,67,19,413 in respect of international transaction pertaining to provision of software development services (SDS") by the Appellant to its Associated Enterprises ("AES"), alleging that the same is not at arm's length price ("ALP")

4. That on the facts and circumstances of the case and in law, the reference made by the AD suffers from jurisdictional error as the AQ has not recorded any reasons in the assessment order based on which he reached the conclusion that it w