TMI Blog2012 (10) TMI 285X X X X Extracts X X X X X X X X Extracts X X X X ..... r indirect participation of Sanchez in Zenta Private Limited, Mumbai holding 1005 shares of Peninsula Capital Services Pvt. Ltd India, or otherwise and share holding pattern of 80% share holder also has any direct or indirect control in Sanchez, we do not propose to give any finding at this juncture whether there is any relationship of associated enterprise between the parties involved herein. Therefore without adjudicating on this issue the order of the DRP as well as TPO is set aside and restore back to TPO to decide afresh whether there is any associated enterprise relationship between the parties and whether provisions of section 92A are applicable - in favour of assessee for statistical purposes. - IT Appeal No. 8682 (Mum.) of 2011 - - - Dated:- 22-8-2012 - B.R. MITTAL AND B. RAMAKOTAIAH, JJ. P.J. Pardiwala and Nishant Thakkar for the Appellant. Ajit Kumar Jain for the Respondent. ORDER B. Ramakotaiah, Accountant Member - This is an appeal by assessee against the order of the ITO 3(3)(2) Mumbai u/s 143(3) r.w.s. 144C of the I.T. Act, 1961. The issues in this appeal is whether the provisions of sec 92A are applicable to the transactions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo parties. Assessee's submission is that Sanchez Computer Associates Inc, USA which is 100%subsidiary of Fidelity Information Services holds 20% share in the assessee company. The remaining 80% is held by Peninsula Capital Services Pvt. Ltd, India. Therefore, Fidelity Information services can only be stated to be holding 20% in assessee company indirectly. Assessee also submits that none of the other conditions prescribed in section 92A(2) are fulfilled in the assessee's case in so far as assessee's relationship with Fidelity Information Services and Fidelity Outsourcing Services (i.e. FIS and FOS respectively) are concerned and therefore these 2 companies cannot be considered as associate enterprises of assessee. Specifically the provisions of sec 92A(2)(i) also do not apply as the assessee is a service provider and not to manufacture. In the circumstances there been no relationship of any associated enterprise provisions of transfer pricing are not applicable. The adjustment made by Transfer Pricing Officer is void ab initio and should not be warranted. Assessee states that the submissions had been made before the TPO as well who had not considered the same. An appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unstated and unexplained, the claim of abundant caution while filing form 3CEB remains unsubstantiated and questionable . 4. Thereafter the DRP went on to make its observations on various objections raised by the assessee and TPO accordingly passed the order in compliance to the DRP directions. 5. Aggrieved, the assessee raised main ground as under: 1. On the facts and in the circumstances of the case and in law, the ld AO/Hon'ble Dispute Resolution Panel(DRP) has erred in considering/treating Fidelity Information Services (FIS) and Fidelity Outsourcing Services, Inc (FOS), collectively referred to as Fidelity Group Entities, as Associated Enterprises and consequently erred in making a transfer pricing adjustment of ₹ 3,16,49,090/-to the services rendered by the Appellant to Fidelity Group entities. It is prayed that it be held that Fidelity Group entities are not to be considered/treated as Associated Enterprises of the Appellant and consequently the transfer pricing adjustment be deleted . 6. Without prejudice to the above Ground No.1, the assessee also raised Ground Nos.3 to 5 on the merits of the adjustment made and the methodology adopted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) of Section 92A of the Act. According to clause (a) when one enterprise participates in the (i) management or (ii) control or (iii) capital of the other enterprise then the two enterprises become associated enterprises. The clause states that such participation can be (i) directly or (ii) indirectly or (iii) through one or more intermediaries. According to clause (b) when the same person (s) participates in the (i) management or (ii) control or (iii) capital of two enterprises then the two enterprises become associated enterprises. The clause states that such participation can be (i) directly or (ii) indirectly or (iii)through one or more intermediaries. The clause (a) or (b) of sub-section (1) of section 92A of the Act does not prescribe a minimum threshold that can lead to creation of an associated enterprise relationship. Hence even 1% shareholding can also lead to creation of the relationship of association enterprises. In the present case it is beyond doubt that there is an indirect participation in the shareholding of the assessee company by Fidelity Information Services (FIS). Further Fidelity Outsourcing Services (FOS) is a group company of FI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere the application of arm's length price results in a downward revision in the income chargeable to tax in India. The existing provisions contained in section 92A of the Income Tax Act to provide as to when two enterprises shall be deemed to be associated enterprises. It is proposed to amend sub-section (2) of the said section to clarify that the mere fact of participation by one enterprise in the management or control or capital of the other enterprise, or the participation of one or more persons in the management or control or capital of both the enterprises shall not make them associated enterprises, unless the criteria specified in sub-section (2) are fulfilled . 11.1 Relying on the above explanation it was his submission that Section 92A(2) and 92A(1) are inter-related and unless the criteria specified in sub-section (2) are fulfilled, the two enterprises cannot be considered as associated enterprises just because there is no threshold prescribed for share holding. If the argument of the learned CIT is to be accepted then any person holding a single share in another company also could become an associated enterprise. That is the reason why sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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