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2018 (10) TMI 1947 - AT - Income TaxTP Adjustment - comparable selection - HELD THAT:- Clearly the assessee has admitted itself in the business of content developments and on line tutoring, thus the assessee itself is in the KPO services, therefore it would be held that ICRA Online Ltd., or E4e Health Business, or in any different functioning, consequently the same has correctly taken as comparable. M/s.R.Systems has been additionally identified by the assessee as comparable, but has been excluded by the TPO and DRP on account of different financial years, cannot be excluded in so far as the said M/s.R.systems is also doing the system of KPO and the finance of the said M/s.R.Systems has been re-worked on quarterly basis and the average of the same has also been determined by the assessee. The average of which has been produced before the TPO and the DRP. The same being comparable to the assessee’s business, the ld. TPO is directed to re-work the PLI after taking into consideration M/s.R.systems as the comparable. The assessee is to provide the financial re-working to the TPO for the necessary adjustments. In the circumstances, the prayer of exclusion of M/s.Harton Communictions, M/s.Infosys BPO Ltd., M/s.ICRA Online Ltd., and E4e Health Business from the list of comparables stands rejected and the assessee’s request for including of M/s.R.Systems as comparable stands accepted. Working capital adjustments - As mentioned earlier the methodology applied herein is TNMM, no specific adjustments towards working capital is permitted, in so far as making only an adjustment of one item being working capital will make the financials of the comparable unworkable. What is comparable is the percentage of the margins, and obviously when arriving at the margins for each of the comparables, such comparables would have taken into consideration their cost of working capital. Therefore, any tinkering to that would have a negative impact, which could be many of the financials of comparables unworkable. It must be remembered that when arriving at margins, various components would go into its calculations, such as the cost of capital, the number of employees, number of working days, type of assets, cost of assets etc. If each of these is to be adjusted, then there would be no comparison. Basically, TNMM what is being looked at, is the margin that normally comparable business would generate. This being so, the working capital adjustments applied for stand rejected. Depreciation on the software - Whether software integral part of the computer? - HELD THAT:- A perusal of the decision of the Bombay High Court in the case of CIT Vs.I-Flex Solutions Ltd., [2014 (3) TMI 1162 - BOMBAY HIGH COURT] says that the Appellate Authority therein had held that the software therein was an integral part of the computer. The software in the case of the assessee is not an integral part of the computer, but are softwares which are used in the computers for the specific business purpose of the assessee. For computer to run there are basic specific software, these softwares are an integral part of the computer. As without such software, the computer would be just a box incapable of doing anything or function as a computer. Now to such a computer, further softwares are added, depending upon the business requirements of the assessee, those softwares are not an integral part of the computers. In the present case, the softwares on which the assessee is claiming depreciation @ 60% are not such softwares, which are the integral part of the computers, but that the list of software mentioned by the assessee, which are used for the specific business purpose of the assessee, in consequence the same cannot be held as integral part of the computer, and cannot be eligible for depreciation @ 60%. Ground No.12 of the assessee’s appeal stands dismissed.
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