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03-07-2019, FNF India, Section 144C(13), 92CA, Tribunal Bangalore

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1 week 6 days ago #9981 by amit
Section - 144C(13), 92CA, 144C, 234A, 234B
Order Date - 03-07-2019
Favouring - Assessee Partly
Court - Tribunal Bangalore
Appellant - FNF India Private Limited
Respondent - ACIT
Justice - N.V. VASUDEVAN VP & JASON P. BOAZ AM
Citation - 719Taxpundit70
Appeal No. - IT(TP)A Nos.195/Bang/2016 & 459/Bang/2017
Asstt. Year - 2011-12 & 2012-13

Order

PER : N.V. Vasudevan

IT(TP)A.No.195/Bang/2016 is an appeal by the Assessee against the order dated 21.12.2015 of ACIT, Circle-3(1)(1), Bangalore (hereinafter referred to as the Assessing Officer, “AO” in short) passed u/s.143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (the Act) in relation to AY 2011-12.

2. IT(TP)A.No.459/Bang/2017 is an appeal by the Assessee against the order dated 22.12.2016 of the AO passed u/s.143(3) r.w.s. 144C(13) of the Act in relation to AY 2012-13.

IT(TP) A.No.195/Bang/2016 (AY 2011-12)

3. The Assessee is a wholly owned subsidiary of Fidelity National Financial International, Mauritius (“FNF Mauritius”) and is a captive service center of FNF Inc. The Assessee provides Information Technology Enabled Services (ITES) to its Associated Enterprise (AE). In terms of the provisions of Sec.92A of the Act, the Assessee and its wholly owned holding company were Associated Enterprises ("AEs"). In terms of Sec.92B(1) of the Act, the transaction of providing ITES was an “international transaction” i.e., a transaction between two or more associated enterprises, either or both of whom are non-residents, in the nature of purchase, sale or lease of tangib e or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. In terms of Sec.92(1) of the Act, any income arising from an international transaction shall be computed having regard to the arm’s length price.

4. As far as the provision of ITES are concerned, the Assessee filed a Transfer Pricing Study (TP Study) to justify the price paid in the international Transaction as at ALP by adopting the Transaction Net Margin Method (TNMM) as the Most Appropriate Method (MAM) of determining ALP. The Assessee selected Operating Profit/Total Cost (OP/TC) as the Profit Level Indicator (PLI) for the purpose of comparison. The OP/TC of the Assessee was arrived at 15.50% by the Assessee in its TP study. The operating income was Rs.34,58,02,453/- and the Operating Cost was Rs.30,73,91,430/-. The Operating profit (Operating income – Operating cost was Rs.3,84,11,023/-. Thus, the OP/TC was arrived at 12.49%. The Assessee chose companies who are engaged in providing similar services
such as the Assessee from the Prowess and Capitaline Plus Data Base. The Assessee identified 8 companies whose average arithmetic mean of profit margin was 14.38% which was less than the Operating margin of the Assessee. The Assessee therefore claimed that the price it charged in the international transaction should be considered as at Arm s Length.

5. The Transfer Pricing Officer (TPO) to whom the determination of ALP was referred to by the AO, accepted TNMM as the MAM and also used the same PLI for comparison i.e., OP/TC. The TPO selected a set of 10 comparable companies (2 out of he 10 so chosen were comparable companies which the Assessee had chosen in its Transfer Pricing Study viz., Cosmic global Ltd., and Jindal Intellicom Ltd.) and worked out the average arithmetic mean of their profit margins and adjustment to ALP as follows:-

6. Aggrieved by the aforesaid addition of Rs.4,03,42,661/- to the total income of the Assessee, the Assessee filed objections before the Disputes Resolution Panel (DRP) u/s 144C of the Act. The DRP excluded 8 out of the 10 comparable companies chosen by the TPO. As a result, only two companies remained for consideration pursuant to the order of the DRP viz., ICRA Online Ltd., and Jindal Intellicom Pvt.Ltd. The Pursuant to the directions of the DRP, the aggregate TP adjustment made by the TPO stood reduced to Rs. 3,96,04,921/-. In effect, the TP adjustment made by the TPO in respect of the ITES segment of the Assessee survived post the DRP's directions.

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