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2015 (5) TMI 45 - ITAT HYDERABADTransfer pricing adjustment - Determination of Arm's length price in international Transactions with AEs - Determination of ALP of management fee and licence fee paid to AE as Nil - Non consideration of other receipts as part of operating revenue for computing the margin - Rejection / Selection of comparables - Disallowance of expenses related to operating software and application software - Non consideration of claim of deduction u/s 10A as per the revised return of income - Held that:- Determination of ALP of management fee and licence fee paid to AE as Nil - Similar view was also expressed by ITAT in assessee’s own case [2015 (3) TMI 92 - ITAT HYDERABAD] for AY 2009-10 dt. 13/02/2015. As the issue in dispute is materially same, respectfully following the aforesaid decisions of coordinate bench in assessee’s own case, we remit the issue back to the file of the AO/TPO to determine the quantum of management fee and licence fee with reference to agreement between the parties. This ground is allowed for statistical purposes. Non consideration of other receipts as part of operating revenue for computing the margin - In the objections raised before ld. DRP assessee claimed that the other income shown are also from the operations of the business, hence, should be treated as part of operating revenue. Ld. DRP after considering the submissions accepted assessee’s claim and directed TPO to treat the other income shown by assessee as part of operating revenue. However, the directions of ld. DRP were not implemented by AO in the final assessment order. In our view, when ld. DRP has specifically directed TPO to treat the other income shown by assessee as part of operating revenue for computing PLI, AO/TPO are duty bound to comply to the directions of ld. DRP. That being the case, we direct AO/TPO to compute PLI by treating the other income as part of the operating revenue. Selection of certain companies as comparables by TPO - Acropetal Technologies Ltd. - We find merit in the submissions of ld. AR. On a perusal of the annual report of the company, it is found that during the year the company has made acquisitions which might have impacted the profit making of the company. - Cosmic Global Ltd - TPO while applying filters for selection of comparable have excluded companies having less than 1 crore turnover from BPO services, revenue earned by this company from BPO services is only ₹ 19.63 lakhs, as claimed by assessee, then, this company cannot be considered as a comparable. - Eclerx Services Ltd - Company cannot be treated as comparable to assessee not only due to the fact that it is involved in high end (KPO) services but it also earned super normal profits due to extraordinary event. - Genesys International Corporation Ltd - Company being totally different in its functionality cannot be a comparable to assessee. - HCL Comnet Systems and Services Ltd - Assessee’s claim of functional difference of the companies requires examination, matter is remitted back to AO/TPO for examining afresh after due opportunity of being heard to assessee. - Infosys BPO Ltd - The Hon’ble Delhi High Court in case of Agnity India Technologies pvt. Ltd., [2013 (7) TMI 696 - DELHI HIGH COURT] has held that Infosys cannot be treated as comparable to other small companies. Rejection of certain companies by TPO - Accurate Data Convertors Pvt. Ltd.- We are of the view that the issue of comparability of the aforesaid company requires examination considering assessee’s claim that as per the information submitted in response to the notice u/s 133(6), the company satisfies all the filters applied by TPO. We, therefore, restore the matter back to the file of the TPO to examine the issue after due opportunity of being heard to assessee. - Informed Technologies Ltd. - As neither TPO nor DRP have examined the aforesaid aspects while rejecting the aforesaid company as comparable, we think it appropriate to restore the issue of comparability of this company to AO/TPO for considering afresh after due opportunity of being heard to assessee. We make it clear, if on examining the information available on record TPO finds that this company satisfies all the filters applied by him, then, he may consider this company as a comparable. Non consideration of claim of deduction u/s 10A as per the revised return of income - There is no dispute to the fact that assessee has filed a revised return of income before AO revising the claiming deduction u/s 10A of the Act. Further, during the assessment proceeding assessee has also submitted a revised Form 56F. In our view, AO without examining assessee’s claim of deduction u/s 10A as per the revised return could not have proceeded to allow the claim as per the original return when he does not dispute the fact that the revised return is a valid return as per the provisions of section 139(5) of the Act. In course of hearing, ld. AR brought to our notice that assessee has also filed a petition u/s 154 of the Act raising the very same issue before AO, which is still pending. Considering the aforesaid facts, we are inclined to remit this issue back to the file of AO with a direction to consider assessee’s claim as per revised return and in accordance with law after due opportunity of being heard to assessee. This ground is allowed for statistical purposes. Disallowance of expenses related to operating software and application software - We have considered the submissions of the parties and perused the materials on record. It is very much evident from record that the software licence fee has been paid towards operation as well as application software. That being the case, the rate of depreciation applicable is 60% (as applicable to computer) and not 25% as allowed by AO. Moreover, this issue is more or less covered in favour of assessee by the decision of the coordinate bench in assessee’s own case [2015 (3) TMI 92 - ITAT HYDERABAD] for the AY 2009-10. In view of the above, we direct AO to allow depreciation @ 60% on the software licence fee. This ground is partly allowed. - Decided partly in favour of assessee.
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