Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2020 (2) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (2) TMI 1222 - ITAT KOLKATATP Adjustment - Selection of tested party - comparable selection - HELD THAT:- TPO has also stated that subsidiaries act primarily as marketing arm of the assessee and perform administrative services. It is the assessee which is entrusted with the task of performing the non-administrative, core and essential services. Therefore, the ld TPO has himself accepted that assessee is more complex entity and foreign AEs are least complex entity. Considering the factual position narrated above, it is abundantly clear that foreign AEs are least complex entity therefore foreign AEs should be treated as tested parties. That being so, we decline to interfere with the order of Id. C.I T.(A) in treating foreign AEs as tested party. His order on this issue is, therefore, upheld and the grounds of appeal of the Revenue are dismissed. Selection of MAM - CIT(A) justification in accepting the Cost Plus Method (CPM) as the most appropriate method for establishing arm’s length price in the services rendered by BAT, Pyxis and SNPL? - When the assessee has chosen a MAM and substantiated the choice in its transfer pricing study report, in my considered view of the matter it is for the ld. TPO to record and substantiate the reasons as to why the assessee’s MAM is incorrect and why some other TP method needs to be the MAM; that said in the instant case, see no determinative substance in any of the ld. TPO’s arguments for rejection of assessee’s internal CPM and adoption of external TNMM. Based on the above reasoning, I hold that CPM as adopted by the assessee, be adopted as the MAM for the export of software services by the assessee. Accepting segmented accounts for AE for establishing arm’s length price - We note the assessee explained before ld TPO in thread bare detail of functional analysis of the transactions and the Ld. TPO has failed to give due cognizance to the essence of the respective transaction. All the transactions are independent in terms of activities, purpose and legally through binding agreement. The cost of rendering/ receipt of services are also captured separately in the accounting system. In support of the same, the assessee has provided the segmental data of I2A and I2B for transactions with the assessee, the margin of which was benchmarked from arm's length perspective.We have gone through the findings of ld CIT(A) and do not find any infirmity. That being so, we decline to interfere with the order of Id. C.I T.(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed. Nature of expenses - software expenses - revenue or capital expenditure - HELD THAT:- Expenditure incurred on the purchase of the application softwares used exclusively for the purpose of the business of the assessee company amounting to ₹ 55,16,940/- has been charged as revenue expenditure and debited to the Profit and loss account. These application softwares have not resulted in any enduring benefit to the company. Hence the expenditure is not classified as capital expenditure. These were approximately treated as revenue expenditures and were claimed accordingly for the purpose of Income Tax too. These application software, have had limited useful life and are used as tools of business like any other component or consumable item used for the purpose of earning revenue. The assessee company has incurred these application software expenses to fine tune its business operations thereby, enabling the running of its business more effectively, efficiently and profitably. We note that while disallowing the expenditure incurred on purchase of application softwares the Assessing Officer ignored the fact that Application softwares are used by the assessee for the efficient conduct of its business and do not extend any enduring benefit to the assessee company. After doing critical analysis, the ld CIT(A) noticed that software expenses is enduring nature and therefore classified them as capital assets - Decided against revenue Education cess should be allowed as an expense - AO is directed to allow the claim of education cess in computing total income of the assessee company. These grounds raised by the assessee are allowed
|