M/S. FIS SOLUTIONS SOFTWARE (INDIA) PVT.LTD,,PUNE vs. INCOME-TAX OFFICER, WARD - 1(4),, PUNE

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

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.

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 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.

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 . . . . . . . .

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.

In the result, the appeal is partly allowed for statistical purposes. Order pronounced in the Open Court on 22nd June, 2021.