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Income Tax Appellate Tribunal, DELHI BENCH ‘I-2’ : NEW DELHI
Before: SHRI N.K. SAINI & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
The Appellant, M/s. Fidelity Business Service India Pvt. Ltd.
(hereinafter referred to as ‘the assessee company’) by filing the present appeal sought to set aside the impugned order dated 05.05.2014 passed by the Commissioner of Income-tax-XX, New Delhi qua the assessment year 2011-12 on the ground that :-
“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.”
Briefly stated the facts necessary for adjudication of the controversy at hand are : the assessee company, Fidelity Business Service India Private Limited, is a subsidiary of FID Holdings (Mauritius) Limited, which is a part of the FMR Group of Companies, which provides services to Fidelity Group engaged in providing software development and IT Enabled Services (ITES) related to Fidelity group’s business activities.
During the year under assessment, the assessee company entered into international transactions as per report under section 92CE of the Act as under :-
Nature of transaction Value of international transaction Provision of Software development 7,718,159,202 services Provision of back office support 4,152,145,455 services Reimbursement of expenses 230,213,548
The assessee company has taken 15 companies for comparables out of which 3 comparables viz. (i) Bodhtree Consulting Ltd., (ii) Mindtree Consulting Ltd., and (iii) Lanco Global Systems Ltd. have been retained by the Transfer Pricing Officer (TPO) who has further proposed 26 comparables and finally selected 21 comparables having OP/TC of 29.10%. TPO accepted Transactional Net Margin Method (TNMM) selected by the assessee company as the most appropriate method.
TPO computed the Arm’s Length Price (ALP) as under :-
“a. Computation of Arms Length Price:
The arithmetic mean of the Profit Level indicators is taken as the arms length margin. (Please see Annexure 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 Associated Enterprises is compared to the Arms Length price as under:
Arms Length Price Rs .4,669,680,061 Price shown in the Rs. 4,232,672,465 international transactions
Shortfall being adjustment u/s Rs. 437,007,596 92CA
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 extent of Rs.437,007,596
Summary of Adjustments
The summary of adjustments U/s 92CA is as under Segment Adjustment Software Development Rs.791,800,300 Services 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 treated as transfer pricing adjustment for the FY 2007-08.”
On the basis of TP order, Assessing Officer passed the assessment order making adjustment of Rs.1,22,88,07,896/- (Software Development Services Rs.79,18,00,300/- and IT Enabled Services Rs.43,70,07,596/-) on account of ALP.
Assessee carried the matter by way of filing appeal before the CIT (A) who has partly allowed the appeal. Feeling aggrieved, the assessee company has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
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 travelling and conveyance expenses”. However, perusal of the impugned order passed by ld. CIT (A) goes to prove that no such ground has been raised by the assessee company before ld. CIT (A) nor any such ground has been decided against the assessee company by ld. TPO.
For facility of reference, apart from transfer pricing grounds, other grounds raised by assessee company before the ld. CIT (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.34,059,134 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 withdrawal 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 the Act.
18) That the learned AO has erroneously charged interest of Rs.1,617,878 under section 234D of the Act.”