Fidelity Business Services (P) Ltd. v. Addl. CIT

INCOME TAX ACT, 1961

--Transfer pricing--Computation of ALPSelection of comparables--The assessee was a wholly owned subsidiary of FID Holdings (Mauritius) Limited, the holding company, which was part of the Fidelity Group. The assessee was engaged in providing contract Software Development and Information Technology (IT) enabled services to its Associated Enterprises ('AEs'). The assessee was remunerated cost plus mark up of 13 per cent. for the contract software development services and at the rate of 15 per cent. for the IT enabled services. The assessee adopted transactional net margin method (TNMM). The TPO had, however, rejected the assessee's transfer pricing study. The TPO also denied the benefit of working capital adjustment to the assessee. The TPO, considering the average arm's length mark-up on the cost of comparable companies, made an upward adjustment. The AO passed a draft assessment order. The DRP rejected the contentions/objections raised by the assessee and confirmed the draft assessment passed by AO. The TPO had included Infosys as comparable company for the reason that the assessee, apart from providing software and ITEs services, was also engaged in providing significant value added financial services to its customers and investors. The assessee had challenged the inclusion of Infosys as a comparable company. According to the assessee, Infosys was functionally dissimilar. Held: The Annual report/website of Infosys provides information on the diverse nature of services provided by it as Infosys is the largest publicly held software development company in India. Unlike the assessee, Infosys is extremely diversified and undertakes a wide range of services, apart from software development. Since the revenue and profitability for software development could not be ascertained from the data in the annual report, Infosys could not be included as comparable. Moreover, Infosys had, during the financial year 2005-06, earned almost 49.8 per cent of its software service income from onsite services as against the assessee which had earned its entire income from provision of services offshore. The Annual Report of Infosys further provided that the profits derived by it were pre-dominantly due to 'brand profits' since it owned a substantial intangible assets. Infosys was, therefore, to be excluded from the list of comparable on account of its giantness on cumulative factors, including risk profile, nature of service, turnover, ownership of brand, onsite versus offshore service, expenditure on R & D and advertisement, etc.

Income Tax Act, 1961, Section 92C

Followed:CIT v. Agnity India Technologies (P) Ltd. (2013) 219 Taxman 26 (Del).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2006-2007

INCOME TAX ACT, 1961

--Transfer pricing--Computation of ALPSelection of comparables--NMGI Ltd. was included as comparable in the assessee's TP study. The assessee had not raised any objection against the inclusion of the said company before the TPO. For the first time, the assessee raised objection against the inclusion of NN & GI Ltd. before the DRP which was not specifically considered by the DRP. Held: From the perusal of the Annual Report of NN & GI Ltd., prima facie, it was found that the said company was functionally dissimilar to that of the assessee on account of diversified operation. Moreover, during the relevant financial year, NN & GI Ltd. underwent restructuring exercise on account of amalgamation which impacted the financial statement of the company. However, since the assessee had neither raised any objection of NN&GI Ltd. being included as comparable company before the TPO nor the DRP considered the assessee's objection, it was deemed appropriate in the interests of natural justice and equity to restore this issue to the file of TPO for consideration.

SUBSCRIBE FOR FULL CONTENT