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2015 (6) TMI 602 - AT - Income TaxDisallowance of payment towards consultancy charges by determining Arm's Length Price (ALP) at Nil - Held that:- In the instant case, the UK and USA subsidiaries did only contractual work parcelled out to it whose results were given to clients directly and no technical knowledge was made available to assessee. Hence, even under the respective DTAA, the payments made to UK and US subsidiaries/companies would not fall under the ambit of FTS.' The payments made by assessee to its foreign subsidiaries were towards software development services rendered by them on the portion of work sub-contracted by assessee to them. Thus, if the so called consultancy charges of ₹ 14,98,07,749 paid in the impugned AY are of identical nature, then, it cannot be treated as consultancy charges simpliciter Further, it is relevant to note that though similar payments were made even in the subsequent AY 2009-10, TPO has not determined the ALP of such payments at nil. In view of the aforesaid factual position, since the issue raised by assessee goes to the root of the matter as it is inextricably linked with the ultimate determination of TP adjustment made by TPO and since the primary/basic facts relating to such issue are already available on record, in our view, the additional grounds raised by assessee required to be admitted in consonance with the principle decided in case of NTPC Ltd. v. CIT [1996 (12) TMI 7 - SUPREME Court] . However, since this issue was not raised by assessee before ld. DRP and was raised for the first time before us, in the interest of fair play and justice, we remit the issue back to the file of TPO to decide afresh after examining the agreements between assessee and M/s Pratt & Whitney as well as assessee and its subsidiaries and other evidences brought on record by assessee. - Decided in favour of assessee for statistical purposes. Selection of two comparables, i.e., M/s Infosys Technologies Ltd. and Wipro Ltd. - Held that:- It is accepted fact that these two companies are leading software companies and have carved out a separate place for themselves. They are in their own league and cannot be compared to any other software development company. The Hon'ble Delhi High Court in case of Agnity India Ltd. (2013 (7) TMI 696 - DELHI HIGH COURT ) has also observed that big companies like Infosys cannot be considered as comparable to other software development companies. Different benches of ITAT have also expressed similar view while examining the comparability of Infosys Technologies Ltd and Wipro Ltd. In view of the aforesaid, we direct TPO to exclude these two companies from the list of comparables. - Decided in favour of assessee. Disallowance u/s 40(a)(i) - amount of ₹ 2,29,78,128 was paid to M/s G.E. Network Solutions, Netherlands towards purchase of a software called 'small world software' - Held that:- The amount in question is not taxable u/s 9(1)(i) because even assuming for a moment there is a business connection between the assessee and the foreign software supplier there are no operations in India of the foreign company to which income may be reasonably attributed to as required under Explanation 1(a) to section 9(1)(i). Hence we find there is no applicability of S.9(1)(i) in the instant case. Similar issue relating to disallowance of amounts paid to M/s G.E. Network Solutions, Netherlands towards purchase of 'small world software' came up for consideration before the ITAT in assessee's own case for AYs 2006-07 and 2007-08, the Tribunal after considering the nature of payment and going through the Indo-Netherlands DTAA in the context of provisions contained u/s 195 read with section 9(1)(vi) of the Act, held that the payments made by assessee to M/s G.E. Network Solutions, Netherlands is not in the nature of royalty. Further, the Tribunal held that when the payment made to non residents is not assessable to tax under the Indian Income-tax Act, there cannot be any withholding of tax u/s 195 and consequentially no disallowance can be made u/s 40(a)(i). - Decided in favour of assessee. Exclusion of communication expenses from the export turnover while granting deduction u/s 10A - Held that:- This issue is squarely covered by the decision of CIT v. Gemplus Jewellery [2010 (6) TMI 65 - BOMBAY HIGH COURT] and ITO v. Saksoft Ltd. [2009 (3) TMI 243 - ITAT MADRAS-D]. Following the ratio laid down in the aforesaid judgments, we direct the AO to exclude the communication expenses from export turnover as well as total turnover while computing deduction u/s 10A of the Act. - Decided in favour of assessee. Disallowance of guest house maintenance expenditure and picnic expenditure - Held that:- Undisputedly, though, assessee has claimed these expenditure, but, he has failed to furnish any documentary evidence towards claim of such expenditure. Therefore, assessee's claim of expenditure cannot be allowed in full. However, considering the fact that assessee maintains guest house and some expenditure must have been incurred towards maintenance of the same. It will be reasonable to allow 50% of the expenditure claimed. Accordingly, we direct AO to sustain the addition to the extent of 50% of the expenditure claimed by assessee. - Decided partly in favour of assessee. Disallowance of deduction towards stores and spares written off - Held that:- There is no dispute with regard to the fact that the expenditure claimed by assessee relates to replacement of certain spares to the computer which was claimed as revenue expenditure. As evident from record, similar expenditure claimed by assessee in AY 2008-09 was allowed by ld. DRP following its own order passed in AY 2006-07 and 2007-08. However, in the impugned AY, AO has again treated the expenditure as capital in nature. Considering the aforesaid factual aspect, we remit the matter back to the file of AO to verify the nature of expenditure vis-à-vis- the expenditure claimed in AY 2006-07, 2007-08 and 2008-09. If, on verification, the nature of expenditure is found to be same, then, the expenditure claimed has to be allowed - Decided in favour of assessee for statistical purposes.
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