DCIT, New Delhi V. M/s. Fidelity Business Services India Pvt. Ltd., Bangalore

ITA 4321/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4143 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 31-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 07-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction
• Section: 244A; 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH I-2 : NEW DELHI) BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.4321/DEL./2014 (ASSESSMENT YEAR : 2008-09) DCIT, CIRCLE 11 (1), VS. M/S. FIDELITY BUSINESS SE RVICE INDIA NEW DELHI. PVT. LTD., PINEHURST, EMBASSY GOLF LINKS BUSINESS PARK, OFF INTERMEDIATE RING ROAD, BANGALORE 560 071. (PAN : AAACF6175E) (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI H.K. CHOUDHARY, CIT DR DATE OF HEARING : 04.10.2017 DATE OF ORDER : 12.10.2017 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, M/S. FIDELITY BUSINESS SERVICE INDI A PVT. LTD. (HEREINAFTER REFERRED TO AS THE ASSESSEE COMPANY) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORD ER DATED 05.05.2014 PASSED BY THE COMMISSIONER OF INCOME-TAX -XX, NEW DELHI QUA THE ASSESSMENT YEAR 2011-12 ON THE GROUND THAT :- ITA NO.4321/DEL/2014 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.1,22,88,07,896/- MADE OUT OF TRAVELLING & CONVEYANCE EXPENSES. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : THE ASSESSEE COMPANY, FID ELITY BUSINESS SERVICE INDIA PRIVATE LIMITED, IS A SUBSIDIARY OF F ID HOLDINGS (MAURITIUS) LIMITED, WHICH IS A PART OF THE FMR GRO UP OF COMPANIES, WHICH PROVIDES SERVICES TO FIDELITY GROU P ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT AND IT ENABLED SERVI CES (ITES) RELATED TO FIDELITY GROUPS BUSINESS ACTIVITIES. 3. DURING THE YEAR UNDER ASSESSMENT, THE ASSESSEE C OMPANY ENTERED INTO INTERNATIONAL TRANSACTIONS AS PER REPO RT UNDER SECTION 92CE OF THE ACT AS UNDER :- NATURE OF TRANSACTION VALUE OF INTERNATIONAL TRANSACTION PROVISION OF SOFTWARE DEVELOPMENT SERVICES 7,718,159,202 PROVISION OF BACK OFFICE SUPPORT SERVICES 4,152,145,455 REIMBURSEMENT OF EXPENSES 230,213,548 4. THE ASSESSEE COMPANY HAS TAKEN 15 COMPANIES FOR COMPARABLES OUT OF WHICH 3 COMPARABLES VIZ. (I) BOD HTREE CONSULTING LTD., (II) MINDTREE CONSULTING LTD., AND (III) LANCO GLOBAL SYSTEMS LTD. HAVE BEEN RETAINED BY THE TRANS FER PRICING ITA NO.4321/DEL/2014 3 OFFICER (TPO) WHO HAS FURTHER PROPOSED 26 COMPARABL ES AND FINALLY SELECTED 21 COMPARABLES HAVING OP/TC OF 29. 10%. TPO ACCEPTED TRANSACTIONAL NET MARGIN METHOD (TNMM) SEL ECTED BY THE ASSESSEE COMPANY AS THE MOST APPROPRIATE METHOD . 5. TPO COMPUTED THE ARMS LENGTH PRICE (ALP) AS UND ER :- A. COMPUTATION OF ARMS LENGTH PRICE: THE ARITHMETIC MEAN OF THE PROFIT LEVEL INDICATORS IS TAKEN AS THE ARMS LENGTH MARGIN. (PLEASE SEE ANNEXU RE E FOR DETAILS OF COMPUTATION OF PLI OF THE COMPARABLES). BASED ON THIS, THE ARMS LENGTH PRICE OF THE IT ENABLED SERVICES RENDERED BY YOU IS COMPUTED AS UNDER: ARITHMETIC MEAN PLI : 29.16% LESS: WORKING CAPITAL ADJUSTMENT : 2.84% ARM'S LENGTH PRICE: : 26.32% OPERATING COST RS.3,696,706,825 ARMS LENGTH MARGIN 26.32 % OF THE OC ARMS LENGTH PRICE (ALP) RS .4,669,680,061 B. PRICE RECEIVED VIS-A-VIS THE ARMS LENGTH PRICE : THE PRICE CHARGED BY THE TAX PAYER TO ITS ASSOCIATE D ENTERPRISES IS COMPARED TO THE ARMS LENGTH PRICE AS UNDER: ARMS LENGTH PRICE RS .4,669,680,061 PRICE SHOWN IN THE INTERNATIONAL TRANSACTIONS RS. 4,232,672,465 SHORTFALL BEING ADJUSTMENT U/S 92CA RS. 437,007,596 ITA NO.4321/DEL/2014 4 THE ABOVE SHORTFALL OF RS.437,007,596 IS TREATED AS TRANSFER PRICING ADJUSTMENT U/S 92CA. BASED ON THE ABOVE DETAILED DISCUSSION, THE ARM'S LENGTH PRICE OF THEE INTERNATIONAL TRANSACTIONS PERTAINING TO PROVIDING IT ENABLED SERVICES IS DETERMINED AT RS.4,669,680,061 INSTEAD OF RS.4,232,672,465 CHARGED IN ITS INTERNATIONAL TRANSACTIONS, RESULTING IN AN ADJUSTMENT TO THE EXT ENT OF RS.437,007,596 17. SUMMARY OF ADJUSTMENTS THE SUMMARY OF ADJUSTMENTS U/S 92CA IS AS UNDER SEGMENT ADJUSTMENT SOFTWARE DEVELOPMENT SERVICES RS.791,800,300 I T ENABLED SERVICES RS.437,007,596 TOTAL RS.1,228,807,896 THUS THE ABOVE AMOUNT OF RS.L,228,807,896 IS TREATE D AS TRANSFER PRICING ADJUSTMENT FOR THE FY 2007-08. 6. ON THE BASIS OF TP ORDER, ASSESSING OFFICER PASS ED THE ASSESSMENT ORDER MAKING ADJUSTMENT OF RS.1,22,88,07 ,896/- (SOFTWARE DEVELOPMENT SERVICES RS.79,18,00,300/- AN D IT ENABLED SERVICES RS.43,70,07,596/-) ON ACCOUNT OF ALP. 7. ASSESSEE CARRIED THE MATTER BY WAY OF FILING APP EAL BEFORE THE CIT (A) WHO HAS PARTLY ALLOWED THE APPEAL. FEE LING AGGRIEVED, THE ASSESSEE COMPANY HAS COME UP BEFORE THE TRIBUNA L BY WAY OF FILING THE PRESENT APPEAL. ITA NO.4321/DEL/2014 5 8. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 9. THE SOLE GROUND RAISED BY THE REVENUE BY WAY OF FILING THE PRESENT APPEAL IS THE LD. CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.1,22,88,07,896/- MADE OUT OF TRA VELLING AND CONVEYANCE EXPENSES . HOWEVER, PERUSAL OF THE IMPUGNED ORDER PASSED BY LD. CIT (A) GOES TO PROVE THAT NO SUCH GR OUND HAS BEEN RAISED BY THE ASSESSEE COMPANY BEFORE LD. CIT (A) N OR ANY SUCH GROUND HAS BEEN DECIDED AGAINST THE ASSESSEE COMPAN Y BY LD. TPO. FOR FACILITY OF REFERENCE, APART FROM TRANSFER PRIC ING GROUNDS, OTHER GROUNDS RAISED BY ASSESSEE COMPANY BEFORE THE LD. C IT (A) ARE REPRODUCED FOR READY PERUSAL AS UNDER :- 15) THAT THE LEARNED AO HAS ERRONEOUSLY GRANTED TDS CREDIT OF RS.26,479,667 AS AGAINST RS.34,059,13 4 CLAIMED BY THE COMPANY IN THE RETURN OF INCOME. 16) THAT THE LEARNED AO ERRED IN ADDING A SUM OF RS.2,093,547 TO THE TOTAL TAX LIABILITY BEING WITHD RAWAL OF INTEREST UNDER SECTION 244A OF THE ACT. 17) THAT THE LEARNED AO HAS ERRONEOUSLY CHARGED INTEREST OF RS.141,978,158 UNDER SECTION 234B OF TH E ACT. 18) THAT THE LEARNED AO HAS ERRONEOUSLY CHARGED INTEREST OF RS.1,617,878 UNDER SECTION 234D OF THE ACT. ITA NO.4321/DEL/2014 6 10. SO, IN THE GIVEN CIRCUMSTANCES, WE ARE OF THE C ONSIDERED VIEW THAT THE REVENUE HAS FILED THIS APPEAL BY COMP LETELY MISCONSTRUING THE FACTS. WHEN NO SUCH ADDITION ON ACCOUNT OF DISALLOWANCE OF TRAVELLING AND CONVEYANCE EXPENSES TO THE TUNE OF RS.1,22,88,07,896/- HAS BEEN MADE BY LD. TPO, THE Q UESTION OF DELETING THE SAME BY LD. CIT (A) DOES NOT ARISE. R ATHER THE FIGURE OF AMOUNT OF RS.1,22,88,07,896/- IS THE TP ADJUSTME NT MADE BY THE AO AS PROPOSED BY LD. TPO. CONSEQUENTLY, PRESENT AP PEAL IS HEREBY DISMISSED BEING NOT MAINTAINABLE. ORDER PRONOUNCED IN OPEN COURT ON THIS 12 TH DAY OF OCTOBER, 2017. SD/- SD/- (N.K. SAINI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 12 TH DAY OF OCTOBER, 2017 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A)-XX, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.