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2017 (8) TMI 913 - ITAT DELHIInternational transaction of ‘Software development services' - selection criteria of comparable - Held that:- It is axiomatic that if company ‘A’ is functionally different from company ‘B’, then, such a company cannot be considered as comparable. Two companies can be treated as comparable when both are discharging overall similar functions, though there may be some minor differences in such functions, not marring the otherwise comparability. Notwithstanding the functional similarity, many a times a company ceases to be comparable because of other reasons as well. If, however, in the subsequent year, the related party transactions fall below that barrier, then such company would again become comparable. In the like manner, a company might have been treated as non-comparable due to the TPO adopting its entity level results for comparison with the segmental results of the case before him, but in a later case, the TPO may take only the related segment results. In such a later case, the company treated as non-comparable to the first company may become comparable to the second company. Thus, it is clearly deductible that if a particular company has been held to be not comparable in the case of another company, then such former company may not always be non-comparable to the assessee company also. The comparability of each company needs to be ascertained only after matching the functional profile and the relevant reasons of the other company. Ergo, this preliminary contention raised on behalf of the assessee is rejected as devoid of merits. Assessee business of ‘Software solutions’ and ‘Consultancy services’ in the area of telecommunication industry, thus industries functionally dissimilar with that of assessee need to be deselcted from final list of comparable. Addition towards Licence expenses - Held that:- The assessee agreed to share a percentage of sale price to Aircom, UK. Clause (1) of the Agreement provides that: “ITP charges to be paid by the subsidiary to the parent company @ 45% of the total sale value of software and support and maintenance charge.” Pursuant to this Agreement, the assessee raised invoices on certain customers in India. The invoice value was shown as its income and the amount paid to its AE was shown as Licence fee expenditure in its Annual accounts. We are at loss to appreciate as to how the assessee can be said to have created an ‘Intangible asset’ by paying the Licence fee to its AE in respect of sales made. Such payment @ 45% of the invoice value was the obligation of the assessee ab initio without which it could not have procured the license of ENTERPRISE suite for sale in India. This amount can be loosely characterized as cost of goods transferred to the customers in India, which has necessarily to be allowed as a revenue expenditure. Similar view has been taken by the tribunal in its order for the immediately preceding year. We, therefore, overturn the impugned order on this score and direct the deletion of addition of ₹ 112.50 lac and odd made by the Assessing Officer.
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