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17-05-2019, FIS Solutions (India), Section 144C, 92C(2), Tribunal Pune

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4 months 17 hours ago #9505 by amit
Section - 144C, 92C(2), 10A, 271(1)(c)
Order Date - 17-05-2019
Favouring - Assessee
Court - Tribunal Pune
Appellant - FIS Solutions (India) Pvt. Ltd.
Respondent - DCIT
Citation - 519Taxpundit268
Appeal No. - ITA No.456/PUN/2017
Asstt. Year - 2012-13



The appeal filed by assessee is against the order of DCIT, Circle 6, Pune, dated 22.12.2016 relating to assessment year 2012-13 passed under section 143(3) r.w.s. 144C of the Income-tax Act, 1961 (in short ‘the Act’).

2. The assessee has raised the following grounds of appeal:-

A. General

1. erred in assessing the total income at Rs.810,769,315 as against income of Rs.602,526,660 (as per the return of income filed by the Appellant on 29 November 2012);

B. Transfer Pricing adjustment under provisions of Chapter X of the Act in respect of international transaction of provision of software development services

2. rejecting comparable companies based on strict comparison of products/services while using Transaction Net Margin Method as the most appropriate method;

3. disregarding the benchmarking analysis and comparable companies selected by the Appellant based on the contemporaneous data in the transfer pricing study report

4. cherry picking the high margin companies and rejecting the low margin companies by applying arbitrary filters to arrive at a fresh set of comparable companies and not sharing the search strategy adopted forselection of alleged comparable companes during the course of assessment proceedings;

5. erroneously computing the operating margins of the companies by considering foreign exchange gain / loss as non-operating in nature;

6. erred in computing the working capital adjustment for comparable companies while giving effect to the directions passed by the Hon'ble DRP;

7. rejecting the use of multip e year data for determining the arm's length price of the int rnational transactions of the appellant pertaining to provision of software development services to its AE;

8. not allowing adjustments for difference in risk undertaken, difference in marketing and R&D activities in accordance with the provisions of Rule 10B of the Rules;

9. denying the benefit / reduction of 5 percent from the arithmetic mean as provided in proviso to section 92C(2) of the Act;

10. not appreciating that the Appellant has no motive to shift profits outside India, as the Appellant has been availing the benefit of deduction under Section 10A of the Act during the year under consideration;

C. Initiation of penalty proceedings under section 271(1)(c) of the Act

11. erred on facts and in law in initiating the penalty proceedings under section 271(1)(c) of the Act for furnishing inaccurate particulars of income.

3. The issue raised in the present appeal is against transfer pricing adjustment made in the hands of assessee in respect of international transaction of provision of software development services.

4. The learned Authorized Representative for the assessee pointed out thatin case ground of appeal No.4 is decided i.e. against exclusion of five concerns, then the margins shown by the assessee would be within +/- 5% range of mean margins of comparables finally selected. The learned Authorized Representative for the assessee also pointed out that the issue of exclusion of said concerns is squarely covered by the order of Pune Bench of Tribunal in the case of M/s. PubMatic India Private Limited Vs. ACIT in ITA No.655/PUN/2017, relating to assessment year 2012-13, order dated 09.03.2018 and also in assessee’s own case in respect of two concerns.

5. The learned Departmental Representative for the Revenue however, stressed that in case the said concerns are excluded, then only two concerns would be left in the list for benchmarking international transactions of the assessee.

6. First of all, we take up the ground of appeal No.4 raised by assessee, which is challenging the inclusion of following concerns as functionally comparable to the assessee:-

i) Thirdware Solutions Ltd.,
ii) Cybermate Infotek Ltd.,
iii) Cybercom Datamatics Information Solutions Ltd.,
iv) Infobeans Systems Pvt. Ltd.,
v) E-Zest Solutions Ltd.

7. The assessee had entered into several international transactions with its associated enterprises. However, the issue which needs to be adjudicated is in respect of provision of software services provided by the assessee to SunGard International INC at ₹ 39.10 crores. The assessee had applied TNMM method and worked out the PLI on Operating Profit / Operating Cost at 17.80%. The assessee had selected certain concerns as functionally comparable and since

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