Income Tax Appellate Tribunal - Pune
M/S. Fis Solutions Software (India) ... vs Income-Tax Officer, Ward - 1(4),, Pune on 22 June, 2021
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
आयकर अपील सं. / ITA No.1756/PUN/2018
िनधा रण वष / Assessment Year : 2014-15
M/s. FIS Solutions Software Vs. ITO, Ward-1(4),
(India) Private Limited Pune
(formerly known as SunGard
Solutions Software (India)
Private Limited),
Upper Ground Floor to 7th Floor,
West end Center One,
Survey No.169/1, Sector-II,
Aundh, Pune 411 007
Maharashtra
PAN : AALCS0619K
Appellant Respondent
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
आदेश / 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 Assessing 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 year 2014-15.2 ITA No.1756/PUN/2018
M/s. FIS Solutions Software (India) Private Limited
2. The only issue raised in this appeal is against the transfer pricing addition of Rs.9,18,00,388/-. Briefly stated, the facts 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 Information Technology Enabled Services (ITES) through its Shared Service Centre located in Pune. The assessee filed its return declaring total income of Rs.1,37,010/-. Certain international transactions were reported in Form No. 3CEB. The AO made a reference to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price (ALP) of the international transactions. The only international transaction under challenge is rendering of `Information Technology Support Services' with transacted value of Rs.122,06,21,846/-. 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 business as that of rendering ITES and also the TNMM as the most appropriate method. He made variation in the set of comparables chosen by the assessee and accordingly shortlisted five comparables, which led to proposing transfer pricing adjustment of Rs.10.96 crore. The AO, in the draft order, notified the above adjustment. The assessee 3 ITA No.1756/PUN/2018 M/s. FIS Solutions Software (India) Private Limited remained partly successful before the Dispute Resolution Panel (DRP) inasmuch as one of the companies chosen by the TPO got excluded. After giving effect to the DRP's order, the AO made the transfer pricing addition of Rs.9.18 crore in the final assessment order, against which the assessee has approached the Tribunal.
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 DRP also did not provide any succor to the assessee in this regard.
4. We have heard both the sides through Virtual Court and gone through the relevant material on record. In order to decide the comparability or otherwise of the company, it is sine qua non to first understand the functional profile of the assessee under the transaction. There is no dispute as to the nature of business carried on by the assessee as the TPO has accepted in his show cause 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 pursuant to a 4 ITA No.1756/PUN/2018 M/s. FIS Solutions Software (India) Private Limited Purchase order, a copy of which has been placed at page 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 Development services and other IT enabled services.
5. We have gone through the Annual report of MPS Limited, whose copy has been provided at page 102 onwards of the paper book. It has been provided in the Director's report under the head `Opportunities and Threats' that: "MPS Limited has developed on end-to-end cloud-based publishing platform, MPS DigiCore, which addresses the need for an integrated workflow that publishers have started to ask for. As such, MPS Limited has a first-mover advantage in exploiting the market and establishing itself as the 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 Profit and loss account is available at page 135 of the paper book, which shows Revenue from Operations at Rs.18,829.21 lakh. Note no. 2.7 5 ITA No.1756/PUN/2018 M/s. FIS Solutions Software (India) Private Limited 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 are recognized based on the percentage of completion of the project. 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 sheet which shows the figure of inventory at Rs.782.79 lakh. Segmental 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 prescribed 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 Products business. In the absence of any segmental information relating to ITES, this company loses comparability with the assessee company, 6 ITA No.1756/PUN/2018 M/s. FIS Solutions Software (India) Private Limited 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 matter 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. Needless to say, the assessee will be allowed reasonable opportunity of hearing.
7. In the result, the appeal is partly allowed for statistical purposes.
Order pronounced in the Open Court on 22nd June, 2021.
Sd/- Sd/-
(S.S. VISWANETHRA RAVI) (R.S.SYAL)
JUDICIAL MEMBER VICE PRESIDENT
पुणे Pune; िदनां क Dated : 22nd June, 2021
सतीश
आदे श की ितिलिप अ ेिषत/Copy of the Order is forwarded to:
1. अपीलाथ / The Appellant;
2. थ / The Respondent;
3. The CIT(A)-13, Pune
4. The PCIT-5, Pune
5. DR, ITAT, 'C' Bench, Pune
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune 7 ITA No.1756/PUN/2018 M/s. FIS Solutions Software (India) Private Limited 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 JM the second member
4. Draft discussed/approved by JM Second Member.
5. Approved Draft comes to the Sr.PS Sr.PS/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.
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