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2014 (10) TMI 737 - AT - Income TaxAddition of rental income – Held that:- The lease deed dated June 2, 2003 between the assessee- company and Vanenburg IT Park was amended by an addendum with effect from September, 22,2004 to include lease of additional premises (building 'D' 4th floor) which inter-alia included revised monthly rental and the AO has wrongly considered the amended lease agreement entered into by the assessee and the landlord which was operational with effect from September 22, 2004, without appreciating the fact that Skyworks had occupied the said premises and availed of the facilities up to June, 2004 only - the figure of monthly rentals arrived at by the AO is based on the amended lease agreement and consequently the view of the AO with regard to recovery of the amount from Skyworks computed by the AO was wrong – the AO has wrongly stated that Skyworks has availed the said premises/facilities only 6 months from April 4, 2004 to September, 2004 whereas the Skyworks has availed the premises for a period of 3 months only i.e., during April, May and June, 2004 - the addition determined by the CIT(A) as the rental income is to be deleted. Payment made to 'bandwidth' charges u/s 40(a)(ia) – Held that:- Following the decision in M/s. Market tools Research Pvt. Ltd. vs. DCIT [2014 (2) TMI 312 - ITAT HYDERABAD] - the offer of a standard facility to a number of customers such as telephone/cell phone users does not amount to rendering any ‘technical service’ within the meaning of the definition of technical service - Technical or consultancy service rendered should be of such a nature that it ‘makes available’ the technical knowledge, skills etc. must remain with the person receiving the services even after the particular contract comes to an end - It is enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it - The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider - the CIT(A) erred in upholding the disallowance made by the AO in respect of payment made to towards bandwidth charges u/s. 40(a)(ia) – Decided in favour of assessee. Determination of arm's length mark-up for provision of software development services – Held that:- As decided in Intoto Software Services Pvt. Ltd. vs. ACIT [ 2013 (10) TMI 599 - ITAT HYDERABAD] - the assessee has accepted the Exensys Software Solutions Limited as one of the comparable companies when proposed by the TPO - the fact that there is an amalgamation of two companies i.e., Exensys Software Limited and Holool India Limited, the results of which, has resulted in high operating margin cannot be lost sight for - to compare a company with another company, both the companies have to be brought on par with each other after making the necessary adjustments wherever necessary and possible - As the material relied upon by the learned Counsel for the assessee clearly denotes that there is an extraordinary event which has resulted in the high operating margin of the company, the matter is to be remitted back to the AO for re-consideration. The TPO has brought out the differences between a product company and a software development services provider - he is aware of the functional dissimilarity between a product company and a software development service provider - the AO ought not to have taken the companies which are into both the product development as well as software development service provider as comparables unless the segmental details are available - Even if he has adopted the filter of more than 75% of the revenue from the software services for selecting a comparable company, he ought to have taken the segmental results of the software services only - The percentage of expenditure towards the development of software products may differ from company to company and also it may not be proportionate to the sales from the sale of software products - Under section 133(6) of the I.T. Act, the TPO has the power to call for the necessary details from the comparable companies - the AO/TPO has exercised this power to call for details with regard to the various companies - the AO is directed to rework out the ALP on the remaining comparables in the list and make adjustment, if any – Decided partly in favour of assessee.
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