M/s. FIS Solutions Software (India) Pvt.Ltd, Pune V. Income-tax Officer, Ward - 1(4), Pune

ITA 1756/PUN/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2776 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 06-05-2021
• Assessment Year: 2014-2015
• Appeal Filed On: 16-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Wholly owned subsidiary
• Section: 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH, C PUNE VIRTUAL COURT BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER . / ITA NO.1756/PUN/2018 / ASSESSMENT YEAR : 2014-15 M/S. FIS SOLUTIONS SOFTWARE (INDIA) PRIVATE LIMITED (FORMERLY KNOWN AS SUNGARD SOLUTIONS SOFTWARE (INDIA) PRIVATE LIMITED), UPPER GROUND FLOOR TO 7 TH FLOOR, WEST END CENTER ONE, SURVEY NO.169/1, SECTOR-II, AUNDH, PUNE 411 007 MAHARASHTRA PAN : AALCS0619K VS. ITO, WARD-1(4), PUNE APPELLANT RESPONDENT / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE FINAL ASSESSMENT ORDER DATED 11-09-2018 PASSED BY THE ASSESS ING OFFICER (AO) U/S.143(3) R.W.S.144C(13) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED THE ACT) IN RELATION TO THE ASSESSMENT YE AR 2014-15. ASSESSEE BY SHRI DARPAN KIRPALANI, SHRI SHAILY AGARWAL & SHRI AJIT TOLANI REVENUE BY SHRI NAVIN GUPTA DATE OF HEARING 22-06-2021 DATE OF PRONOUNCEMENT 22-06-2021 ITA NO.1756/PUN/2018 M/S. FIS SOLUTIONS SOFTWARE (INDIA) PRIVATE LIMITED 2 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST THE TRANSFER PRICING ADDITION OF RS.9,18,00,388/-. BRIEFLY STATED, THE F ACTS OF THE CASE ARE THAT THE ASSESSEE IS A WHOLLY OWNED SUBSIDIARY OF AUTOMATED SECURITIES CLEARANCE LLC, USA AND IS A PART OF SUNGARD GROUP. THE ASSESSEE IS ENGAGED IN PROVIDING IN FORMATION TECHNOLOGY ENABLED SERVICES (ITES) THROUGH ITS SHARED SERVICE CENTRE LOCATED IN PUNE. THE ASSESSEE FILED ITS RETURN DECLARIN G TOTAL INCOME OF RS.1,37,010/-. CERTAIN INTERNATIONAL TRANSACTIONS W ERE REPORTED IN FORM NO. 3CEB. THE AO MADE A REFERENCE TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARMS LE NGTH PRICE (ALP) OF THE INTERNATIONAL TRANSACTIONS. THE ONLY INTERNATIO NAL TRANSACTION UNDER CHALLENGE IS RENDERING OF `INFORMATION TE CHNOLOGY SUPPORT SERVICES WITH TRANSACTED VALUE OF RS.122,06,21,84 6/-. THE ASSESSEE APPLIED THE TRANSACTIONAL NET MARGIN METHOD (TNMM) FOR DEMONSTRATING THE INTERNATIONAL TRANSACTION TO BE AT ALP. THE TRANSFER PRICING OFFICER (TPO) ACCEPTED THE NATURE OF BU SINESS AS THAT OF RENDERING ITES AND ALSO THE TNMM AS THE MOST APPROP RIATE METHOD. HE MADE VARIATION IN THE SET OF COMPARABLES CHOSEN BY THE ASSESSEE AND ACCORDINGLY SHORTLISTED FIVE COMPARABLES, WHIC H LED TO PROPOSING TRANSFER PRICING ADJUSTMENT OF RS.10.96 CRORE. THE AO, IN THE DRAFT ORDER, NOTIFIED THE ABOVE ADJUSTMENT. THE ASSE SSEE ITA NO.1756/PUN/2018 M/S. FIS SOLUTIONS SOFTWARE (INDIA) PRIVATE LIMITED 3 REMAINED PARTLY SUCCESSFUL BEFORE THE DISPUTE RESOLUTION PA NEL (DRP) INASMUCH AS ONE OF THE COMPANIES CHOSEN BY THE TP O GOT EXCLUDED. AFTER GIVING EFFECT TO THE DRPS ORDER, THE AO MADE THE TRANSFER PRICING ADDITION OF RS.9.18 CRORE IN THE FINAL ASSES SMENT ORDER, AGAINST WHICH THE ASSESSEE HAS APPROACHED THE TRI BUNAL. 3. THE ONLY ASSAIL BY THE ASSESSEE IS TO THE INCLUSION OF MPS LIMITED IN THE FINAL SET OF COMPARABLES. THIS COMPANY WAS CHOSEN BY THE TPO AS COMPARABLE. THE ASSESSEE RAISED OBJECTION AGAINST ITS FUNCTIONAL SIMILARITY, WHICH WAS JETTISONED BY THE TPO. THE DR P ALSO DID NOT PROVIDE ANY SUCCOR TO THE ASSESSEE IN THIS REG ARD. 4. WE HAVE HEARD BOTH THE SIDES THROUGH VIRTUAL COURT AND G ONE THROUGH THE RELEVANT MATERIAL ON RECORD. IN ORDER TO DEC IDE THE COMPARABILITY OR OTHERWISE OF THE COMPANY, IT IS SINE QUA NON TO FIRST UNDERSTAND THE FUNCTIONAL PROFILE OF THE ASSESSEE UNDE R THE TRANSACTION. THERE IS NO DISPUTE AS TO THE NATURE OF BUSINE SS CARRIED ON BY THE ASSESSEE AS THE TPO HAS ACCEPTED IN HIS SHOW CA USE NOTICE AS REPRODUCED AT PAGE 3 OF HIS ORDER THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF IT ENABLED SERVICE (ITES) . ON A PERTINENT QUERY, THE LD. AR SUBMITTED THAT NO FORMAL AGREEMENT WAS ENTERED INTO BETWEEN THE ASSESSEE AND ITS ASSOCIATED ENTERPRISE (AE) FOR RENDERING THE ITES. SUCH SERVICES WERE RENDERED PURSUAN T TO A ITA NO.1756/PUN/2018 M/S. FIS SOLUTIONS SOFTWARE (INDIA) PRIVATE LIMITED 4 PURCHASE ORDER, A COPY OF WHICH HAS BEEN PLACED AT PAG E 1 OF THE PAPER BOOK. THIS PURCHASE ORDER IS EFFECTIVE FROM 01-04 -2012 AND IS VALID TILL 31-03-2014, THEREBY COVERING THE YEAR UNDER CONSIDERATION. AS PER THE TERMS AND CONDITIONS, IT HAS BEEN PROVIDED THAT THE ASSESSEE SHALL PROVIDE US SOFTWARE DEVELOPMENT SERVICES AND OTHER IT ENABLED SERVICES AS PER OUR REQUIREMENT . FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE RENDERED SOFTWARE DEVE LOPMENT SERVICES AND OTHER IT ENABLED SERVICES. 5. WE HAVE GONE THROUGH THE ANNUAL REPORT OF MPS LIMIT ED, WHOSE COPY HAS BEEN PROVIDED AT PAGE 102 ONWARDS OF T HE PAPER BOOK. IT HAS BEEN PROVIDED IN THE DIRECTORS REPORT UNDE R THE HEAD `OPPORTUNITIES AND THREATS THAT: MPS LIMITED HAS DEVELOPED ON END-TO-END CLOUD-BASED PUBLISHING PLATFORM, MPS DIGICORE, WHIC H ADDRESSES THE NEED FOR AN INTEGRATED WORKFLOW THAT PUBLISHER S HAVE STARTED TO ASK FOR. AS SUCH, MPS LIMITED HAS A FIRST-MOVE R ADVANTAGE IN EXPLOITING THE MARKET AND ESTABLISHING ITSELF AS TH E PREMIER TECHNOLOGY SOLUTIONS PROVIDER FOR PUBLISHERS . . . . . . . . SIMILAR OTHER SOLUTIONS ARE BEING DEVELOPED AT MPS LIMITED AS R&D BASED ON THE MARKET REQUIREMENTS. A COPY OF ITS PRO FIT AND LOSS ACCOUNT IS AVAILABLE AT PAGE 135 OF THE PAPER BOOK, WH ICH SHOWS REVENUE FROM OPERATIONS AT RS.18,829.21 LAKH. NO TE NO. 2.7 ITA NO.1756/PUN/2018 M/S. FIS SOLUTIONS SOFTWARE (INDIA) PRIVATE LIMITED 5 OF ITS FINANCIAL STATEMENTS WITH THE CAPTION `REVENUE RECOGNITION READS : REVENUE IS RECOGNIZED ON DELIVERY OF PROJECTS OR AS PER TERMS SPECIFIED IN CONTRACTS/PURCHASE ORDERS RECEIVED FROM CUSTOMERS. REVENUES FOR WEB-SITE DESIGN AND DEVELOPMENT A RE RECOGNIZED BASED ON THE PERCENTAGE OF COMPLETION OF THE PRO JECT. REVENUES FROM WEB-SITE HOUSING ARE RECOGNIZED RATABLY OVER THE YEAR FOR WHICH THE SITE IS HOSTED . ON GOING THROUGH THE ABOVE, IT IS PALPABLE THAT THIS COMPANY IS ENGAGED IN SOFTWARE PRODUCTS AS WELL, WHICH FACT GETS FURTHER FORTIFIED FROM ITS BALANCE SHE ET WHICH SHOWS THE FIGURE OF INVENTORY AT RS.782.79 LAKH. SEGMENTA L INFORMATION OF THIS COMPANY HAS BEEN GIVEN UNDER NOTE 29.1 READING: THE COMPANY OPERATES IN ONE BUSINESS SEGMENT OF PROVIDING PUBLISHING SOLUTIONS VIZ., TYPESETTING AND DATA DIGITALIZATION SERVICES AND IS CONSIDERED TO CONSTITUTE A SINGLE SEGMENT IN THE CONTEXT OF PRIMARY SEGMENT REPORTING AS PRESCR IBED BY ACCOUNTING STANDARD 17 SEGMENT REPORTING . ASSIMILATING THE AFORE-REFERRED FACTS, IT IS AMPLY BORNE OUT THAT MPS LIMITED IS NOT ONLY ENGAGED IN RENDERING ITES BUT IS ALSO INTO SOFTWARE PROD UCTS BUSINESS. IN THE ABSENCE OF ANY SEGMENTAL INFORMATION RELA TING TO ITES, THIS COMPANY LOSES COMPARABILITY WITH THE ASSESSEE COM PANY, ITA NO.1756/PUN/2018 M/S. FIS SOLUTIONS SOFTWARE (INDIA) PRIVATE LIMITED 6 WHICH IS ENGAGED IN RENDERING ONLY ITES. WE, THEREFORE, DIRECT TO EXCLUDE THIS COMPANY FROM THE LIST OF COMPARABLES. 6. TO SUM UP, THE IMPUGNED ORDER IS SET-ASIDE AND THE MA TTER IS RESTORED TO THE FILE OF THE AO/TPO FOR RE-COMPUTING THE ALP OF THE INTERNATIONAL TRANSACTION OF RENDERING `INFORMATION TECHNOLOGY SUPPORT SERVICES IN THE LIGHT OF OUR ABOVE DISCUSSION. NEE DLESS TO SAY, THE ASSESSEE WILL BE ALLOWED REASONABLE OPPORTUNITY OF H EARING. 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JUNE, 2021. SD/- SD/- ( S.S. VISWANETHRA RAVI ) (R.S.SYAL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 22 ND JUNE, 2021 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-13, PUNE 4. 5. 6. THE PCIT-5, PUNE DR, ITAT, C BENCH, PUNE / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE ITA NO.1756/PUN/2018 M/S. FIS SOLUTIONS SOFTWARE (INDIA) PRIVATE LIMITED 7 DATE 1. DRAFT DICTATED ON 22-06-2021 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 22-06-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *