Facts of the Case

The Revenue filed an appeal under Section 260A of the Income-tax Act, 1961 challenging the order dated 18.06.2020 passed by the Income Tax Appellate Tribunal relating to Assessment Year 2010-11. The Tribunal had disposed of cross-appeals filed by the assessee and the Revenue against a composite order of the Commissioner of Income Tax (Appeals) dated 12.10.2018 arising from assessment orders passed under Section 143(3) read with Section 144C and rectification under Section 154. The respondent-assessee, FIS Global Business Solutions India Pvt. Ltd. (formerly eFunds International India Pvt. Ltd.), operated as a software development centre and provider of business process outsourcing services to its associated enterprises and had entered into multiple international transactions including software development services, IT-enabled services, and interest on loans advanced to AEs.

Issues Involved

Whether transfer pricing adjustments for Assessment Year 2010-11 could be deleted by relying on an Advance Pricing Agreement entered into for subsequent and rollback years, whether an APA has persuasive value for years not covered by it when there is no change in the FAR profile, and whether the Tribunal’s deletion of adjustments gave rise to any substantial question of law.

Petitioner’s Arguments

The Revenue contended that the Advance Pricing Agreement entered into between the assessee and the CBDT under Section 92CC was applicable only to specified years and could not override statutory determination of arm’s length price by the TPO for earlier years. It was argued that reliance on the APA for Assessment Year 2010-11 was legally impermissible and that the Tribunal erred in deleting the transfer pricing adjustments solely on the basis of margins agreed under the APA.

Respondent’s Arguments

The assessee argued that there was no dispute that the FAR profile for Assessment Year 2010-11 was identical to the years covered under the APA, including rollback years. It was submitted that the consolidated margin earned by the assessee during the relevant year was higher than the arm’s length margin agreed upon in the APA. Reliance was placed on binding precedents including PCIT vs. Ameriprise India Pvt. Ltd., Springer India Pvt. Ltd., and several ITAT decisions holding that APAs have persuasive value for other years where facts remain unchanged.

Court Order / Findings

The Delhi High Court examined the detailed findings of the Tribunal and noted that it was undisputed that there was no change in the FAR of the assessee for the year under consideration vis-à-vis the APA years. The Court concurred with the Tribunal’s reliance on earlier decisions of the Delhi High Court and ITAT holding that although an APA may not be strictly applicable to non-covered years, it carries significant persuasive value when the functional profile and risk matrix remain unchanged. The Court reiterated the principle laid down in Ameriprise India Pvt. Ltd. and Springer India Pvt. Ltd. that in such circumstances, the APA methodology and margins can guide determination of arm’s length price to minimise unnecessary litigation. The Court held that the Tribunal had correctly applied settled law and that no perversity or legal infirmity was demonstrated.

Important Clarification

The Court clarified that reliance on an APA for non-covered years is permissible only as a guiding or persuasive factor and not as a binding statutory mandate, provided there is complete identity in FAR and nature of international transactions. Each case must turn on its own factual matrix.

Final Outcome

The appeal filed by the Revenue was dismissed. The order of the Income Tax Appellate Tribunal deleting the transfer pricing adjustments for Assessment Year 2010-11 was upheld. The Delhi High Court held that no substantial question of law arose for consideration, and the decision was rendered in favour of the assessee and against the Revenue.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1769681107_THEPR.COMMISSIONEROFINCOMETAX1VsFISGLOBALBUSINESSSOLUTIONSINDIAPVT.LTD..pdf

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