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2023 (4) TMI 21 - ITAT BANGALORETP Adjustment - Determination of Net Cost Margin of Appellant - excluding the sub-contracting charges from the operating cost as they are a pass-through cost - HELD THAT:- As decided in own case [2022 (6) TMI 1357 - ITAT BANGALORE] cost on the software development activity is incurred by the assessee and charging the AE on the said services with a mark up of 10% on cost. The cost of subcontracting in software development services is also charged with 10% mark up to the AE. When the margin on the cost of sub- contracting charges is part of the operating revenue of the assessee then only the cost of sub-contracting activity cannot be excluded as pass through - pass through cost can be considered only when the activity of providing services to the AE does not involve value addition on the part of the AE. - the cost of software development services cannot be treated in this fashion as claimed by the assessee. Hence we do not find any merit in the contention raised by the assessee on this issue. Decided against assessee. Comparable selection - Functionally dissimilar companies cannot be held to be functionally comparable with that of assessee which is a captive service provider that caters only to its AE. Interest on receivables - We note that in assessee’s own case TPO has considered a credit period of 90 days. Accordingly, we direct the Ld.AO/TPO to compute the notional interest if any that falls out of this credit period for the year under consideration by considering LIBOR + 300 basis points. Disallowance u/s. 40(a)(i) towards the salary cost reimbursed by assessee to AE on cost to cost basis - HELD THAT:- We remand this issue to the Ld.AO to consider the claim in accordance with the decision of Hon’ble Karnataka High Court in case of M/s. Flipkart Internet Pvt. Ltd. [2022 (6) TMI 1251 - KARNATAKA HIGH COURT] and M/s. Toyota Boshoku Automotive India Pvt. Ltd. [2022 (4) TMI 1443 - ITAT BANGALORE], Goldman Sachs Services Pvt. Ltd. [2022 (4) TMI 1444 - ITAT BANGALORE] having regard to the evidences filed by the assessee. We also direct that in the event, TDS has been deducted u/s. 192 of the Act, no disallowance can be made u/s. 40(a)(i). Section 40(a)(i) can be invoked only when there has been non-deduction of tax at source. Assessee has relied on the decision of Coordinate Bench of this Tribunal in case of ACIT vs. AON Specialist Services Pvt. Ltd. [2020 (2) TMI 1632 - ITAT BANGALORE] We accordingly direct the Ld.AO to carry out necessary verification in accordance with the decisions referred to hereinabove.
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